Sylvain Chassang, Princeton University, and Juan M. Ortner, Boston University

Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement

Chassang and Ortner study the mechanics of cartel enforcement and its interaction with bidding constraints in the context of repeated procurement auctions. Under collusion, bidding constraints weaken cartels by limiting the scope for punishment. This yields a test of collusive behavior exploiting the counter-intuitive prediction that introducing minimum prices can lower the distribution of winning bids. The model's predictions are borne out in procurement data from Japan, where the researchers find considerable evidence that collusion is weakened by the introduction of minimum prices.