New Research on the Effectiveness of Bidding Rings: Implications for Competition Policies

John M. Connor and Daniel P. Werner published “New Research on the Effectiveness of Bidding Rings: Implications for Competition Policies” in the April 8, 2019 issue of CPI Antitrust Chronicle.

Our statistical findings suggest that the economic injuries from contemporary bidding rings can be lowered in four ways. First, enforce­ment resources ought to be deployed in an anti-cyclical fashion. When recessions occur, antitrust authorities should shift resources away from merger and monopoly investigations and increase the sizes of their cartel units; investigators and forensic specialists from police agencies should also be deployed likewise. Second, managers of antitrust authorities should insist on a proper analysis or study of the structure of the purchasing industries. If they are atomistic, then fewer cases in this category should be pursued. Third, when governments are the main or sole buyers, anti­trust authorities tend to ramp up resources to extract severe penalties. Our results suggest that this is an unwise redeployment. Rings exploiting private buyers deserve proportionality of enforcement. Fourth, our results also imply that antitrust authorities may have overlooked the efficacy of opening up bidding to larger numbers of better-informed purchasers. There may be a public role for setting up well-designed electronic auctions in industries prone to collusion or to improve reporting suspicions of collusion in auctions to the authorities (e.g. individual whistleblower reward policies seem to be working well in the few jurisdictions where they have been tried). Similarly, policies that encourage the entry of new firms in concentrated industries can also pay off. Fifth, it appears that a criminal regime with relatively high fines, an active private damages/class-action legal system, and heavy incarceration for cartel managers is conducive to lower overcharges and marginally better deterrence. Other jurisdictions should adopt similar enforcement methods.