Collusion mechanisms in procurement auctions:An experimental investigation

Collusive agreements are often observed in procurement auctions. They are probablymore easily achieved when competitors’ costs are easily estimated. If, however, the individualcosts of bidders are private information, effective ring formation is difficult to realize.We compare experimentally different coordination mechanisms in a first-price procurementauction in how they promote the prospects of collusive arrangements. Onemechanism allows bidders to coordinate by means of unrestricted pre-play communication.The second one enables bidders to restrict their bidding range and the last one givesthem the opportunity to implement mutual shareholding. According to our results firstpriceprocurement is quite collusion-proof when allowing for the latter two coordinationmechanisms whereas, on average, pre-play communication increases bidders’ profits.