Competition Versus Collusion in Procurement Auctions: Identification and Testing

February 2001 In this research, we develop an approach to the problem of identification and testing for bid-rigging in procurement auctions that tightly integrates economic theory and econometric practice. First, we introduce a general auction model with asymmetric bidders. We show how asymmetries can arise because of location, capacity constraints and collusion. Second, we study the problem of identification in our model. We state a set of conditions that are both necessary and sufficient for an observed set of bids to be generated by a model with competitive bidding. Third, we demonstrate how to test the conditions that characterize competitive bidding and apply these tests to a data set of bidding for procurement contracts. Working Papers Index

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