Journal Article

CARTELS IN PUBLIC PROCUREMENT

Alberto Heimler

in Journal of Competition Law & Economics

Volume 8, issue 4, pages 849-862
Published in print December 2012 | ISSN: 1744-6414
Published online December 2012 | e-ISSN: 1744-6422 | DOI: http://dx.doi.org/10.1093/joclec/nhs028
CARTELS IN PUBLIC PROCUREMENT

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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 (where 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 to discover them (although they have to collect evidence on a number of bids), 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 cartel should at least, in part, remain with the administration that helped discover it and the reporting official should reap a career benefit. In any case, competition authorities should create a channel of communication with public purchasers so that the public purchasers would know that informing the competition authority on any suspicion at bid rigging is easy and does not require them to provide full proof.

Keywords: H57; K21; K42; L41

Journal Article.  5465 words.  Illustrated.

Subjects: Law and Economics ; Antitrust Issues and Policies ; National Government Expenditures and Related Policies

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