External Stability and Bidding Aggressivity of Cartels in Public Procurement : an Empirical Analysis

Abstract: We analyze bidder collusion in public procurement. Our focus is on less than all-inclusive cartels. Using public information on convicted bid-rigging schemes taken from the decisions of the French Competition Authority, we have constructed a database on 33 different cartels operating in 114 public procurement markets. Our empirical work tackles the question of external cartel stability. Our goal is to investigate the impact of outside bidders on cartels. We first show that the number of outside firms is a significant determinant of the low-cartel bid. Moreover, we show that, due to the previous result, the number of outside firms does not significantly impact the probability of being awarded contracts. We believe that these results provide further evidence of the optimality of cartels. In addition, we show that restricted tenders may have a negative impact on the level of collusion while policies that aim at fighting collusion by encouraging entries in the market may have a positive effect on social welfare even when a collusive scheme is suspected.