Debarment and Collusion in Procurement Auctions

Abstract

This article presents the first experiment exploring the impact of debarments - the exclusion of colluding bidders - on collusion in procurement auctions. We find that debarments and their most common alternative, fines, reduce collusion and bids relative to a market with no sanction. The deterrent effect of debarments increases in their length. However, shorter debarments reduce efficiency and increase the bids of non-debarred bidders. This suggests that debarments that are too lenient may trigger tacit collusion among the bidders who remain in the market, thereby facilitating the very behavior they aim to deter.

Keywords: debarment, collusion, procurement auctions, sanctions

JEL Classification: C92, D03, D44, K21, K42