Detecting Bidders Groups in Collusive Auctions

Francesco Decarolis with Timothy G. Conley in American Economic Journal: Microeconomics Vol. 8, No. 2 May, pp. 1-38, 2016.

Abstract: We study entry and bidding in procurement auctions where contracts are awarded to the bid closest to a trimmed average bid. These auctions, common in public procurement, create incentives to coordinate bids to manipulate the bid distribution. We present statistical tests to detect coordinated entry and bidding choices. The tests perform well in a validation dataset where a court case makes coordination observable. We use the tests to detect coordination in a larger dataset where it is suspected, but not known. The results are used to interpret a major market shakeout following a switch to first price auctions.

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