Single Bidders and Tacit Collusion in Highway Procurement Auctions

David Barrus
Brigham Young University-Idaho

Frank Scott
University of Kentucky

Funded by ISFE Summer Grant

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Click here for the published version in the Journal of Industrial Economics

Abstract: Collusion in auctions can take different forms, one of which is refraining from bidding. Such behavior may be overt or tacit. Certain aspects of highway procurement auctions facilitate collusive outcomes. We collect data on asphalt paving auctions conducted by the Kentucky Transportation Cabinet from 2005 to 2007. We analyze both the bid participation decision and the pricing decision. We include variables that affect firm’s’ costs as well as variables that capture competitive and strategic effects. Most importantly, we determine the potential service area of each asphalt plant and use that information to determine the potential bidders for each paving project. We find that, in geographic markets with only a few feasible suppliers, county boundaries serve as a coordinating mechanism for softening competition, significantly influencing firms’ decisions whether and how much to bid.

Published: May, 2017