Cartels in Public Procurement

Journal of Competition Law & Economics 2012 11-23

10 Pages Posted: 5 Oct 2013

See all articles by Alberto Heimler

Alberto Heimler

Government of the Italian Republic (Italy) - National School of Administration

Date Written: March 4, 2012

Abstract

Public procurement markets differ from all others because quantities do not adjust with prices, but are fixed by the bidding authority. As a result, there is a high incentive for organizing cartels (the price elasticity of demand is zero below the base price) that are quite stable because there are no lasting benefits for cheaters. In such circumstances leniency programs are unlikely to help discovering cartels. Since all public procurement cartels operate through some form of bid rotation, public procurement officials have all the information necessary (but they have to collect evidence on a number of bids) to discover them, contrary to what happens in normal markets where customers are not aware of the existence of a cartel. However in order to promote reporting, the structure of incentives has to change. For example, the money saved from a carte, should at least in part remain with the administration that helped discovering it and the reporting official should have some career advantages. In any case, competition authorities should create a channel of communication with public purchasers, so that they would know that informing the Authority on any suspicion they may have on bid rigging is easy and does not require them to provide a full proof.

Keywords: Cartel stability, incentives, detection, deterrence

JEL Classification: H57, K21, K42, L41

Suggested Citation

Heimler, Alberto, Cartels in Public Procurement (March 4, 2012). Journal of Competition Law & Economics 2012 11-23. Available at SSRN: https://ssrn.com/abstract=2336030 or http://dx.doi.org/10.2139/ssrn.2336030

Alberto Heimler (Contact Author)

Government of the Italian Republic (Italy) - National School of Administration ( email )

Via dei Robilant
11 - 00135 Rome
Italy
+3906 33565348 (Phone)

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