Bid Roundness Under Collusion in Japanese Procurement Auctions

Bid Roundness Under Collusion in Japanese Procurement Auctions We analyze the “roundness level” of bids—defined as the number of zeros at the end of the bid—in public procurement auctions for construction works in Okinawa Prefecture, Japan, where a bid-rigging case was filed. We hypothesize that bid rigging increases the roundness of bids through the bid coordination process. Specifically, winners choose round numbers to avoid any miscommunication when they announce their planned bids to other ring members, and losers prefer round numbers when they arbitrarily bid above the winning bid. We find that (1) there is a positive relationship between the roundness of a bid and its relative value as a fraction of the reserve price, (2) the roundness of bids is higher when collusion is active than when it is inactive, (3) among the ring bids, the roundness of the lowest bids is even higher than that of the other bids, and (4) bids by non-ring members are also round when collusion is active. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Bid Roundness Under Collusion in Japanese Procurement Auctions

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Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-013-9408-6
Publisher site
See Article on Publisher Site

Abstract

We analyze the “roundness level” of bids—defined as the number of zeros at the end of the bid—in public procurement auctions for construction works in Okinawa Prefecture, Japan, where a bid-rigging case was filed. We hypothesize that bid rigging increases the roundness of bids through the bid coordination process. Specifically, winners choose round numbers to avoid any miscommunication when they announce their planned bids to other ring members, and losers prefer round numbers when they arbitrarily bid above the winning bid. We find that (1) there is a positive relationship between the roundness of a bid and its relative value as a fraction of the reserve price, (2) the roundness of bids is higher when collusion is active than when it is inactive, (3) among the ring bids, the roundness of the lowest bids is even higher than that of the other bids, and (4) bids by non-ring members are also round when collusion is active.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Nov 6, 2013

References

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