Preventing Collusion in Procurement: A Primer

Abstract

In softening price competition at the tendering stage, a bidding ring may jeopardize the buyer's effort to award a procurement contract at her most advantageous economic conditions. By exploiting the similarities between oligopolistic and procurement markets, we discuss how structural conditions of the procurement market such as the presence of barriers to entry, demand fluctuations, frequency of interactions among suppliers and market transparency affect the sustainability of collusive agreements among participants in a tendering process. We then evaluate the extent to which some aspects of the tendering design such as the choice of tendering format, and in particular of the scoring rule, the constraints on bidding consortia and subcontracting may enhance price competition and limit the risk of successful bid-rigging.

We also review one case of "suspected" coordinated bidding in the procurement market for a pharmaceutical product in Italy, and provide a detailed account of the collusive agreement put in place by a cartel in the "Lunch Coupon" market, also in Italy, that was uncovered and convicted by the Italian Antitrust Authority.

Keywords: procurement, oligopoly, collusion

JEL Classification: H57, D43, L41, K21