Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach

Using Bid Rotation and Incumbency to Detect Collusion: A Regression Discontinuity Approach

Kei Kawai, Jun Nakabayashi, Juan M. Ortner & Sylvain Chassang

 

 

Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on auctions in which the winning and losing bids are very close, it is possible to distinguish allocation patterns reflecting cost differences across firms from patterns reflecting non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999), and a sample of municipal procurement auctions from Japan.