Collusion by Exclusion in Public Procurement

This research article studies bid-rigging in auctions characterized by bidder preselection. It develops a theoretical model to analyze the behavior of partial bid-rigging cartels and examines how two-stage auction formats can be exploited. The paper constructs a collusion marker based on theoretical results and utilizes administrative data from public procurement auctions in Slovakia to identify suspected colluding bidders. The findings indicate that bidder preselection enables cartels to exclude competitive rivals, resulting in increased procurement costs. The article emphasizes the importance of competitive and efficient procurement processes, noting that public procurement constitutes a significant portion of government expenditures. It also discusses the implications of auction design on collusion and highlights the need for effective detection and prevention strategies against bid-rigging. The research includes a quantitative evaluation of a reform that replaced a two-stage auction format with a single-stage auction, revealing differential effects based on cartel activity.