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Bid Roundness Under Collusion in Japanese Procurement Auctions

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Abstract

We analyze the “roundness level” of bids—defined as the number of zeros at the end of the bid—in public procurement auctions for construction works in Okinawa Prefecture, Japan, where a bid-rigging case was filed. We hypothesize that bid rigging increases the roundness of bids through the bid coordination process. Specifically, winners choose round numbers to avoid any miscommunication when they announce their planned bids to other ring members, and losers prefer round numbers when they arbitrarily bid above the winning bid. We find that (1) there is a positive relationship between the roundness of a bid and its relative value as a fraction of the reserve price, (2) the roundness of bids is higher when collusion is active than when it is inactive, (3) among the ring bids, the roundness of the lowest bids is even higher than that of the other bids, and (4) bids by non-ring members are also round when collusion is active.

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Notes

  1. For example, see Genesove and Mullin (2001), Porter (1983) and Roller and Steen (2006).

  2. Porter and Zona (1993), Bajari and Ye (2003) and Abrantes-Metz et al. (2006) provide methods for detecting bid rigging, and Pesendorfer (2000), Asker (2010) and Ishii (2008, 2009) focus on the mechanism by which the bidding ring rotates wins among its members.

  3. See Schindler and Kibarian (1996) and Anderson and Simester (2003).

  4. Kandel et al. (2001) and Klumpp et al. (2007) report the existence of preferences for round numbers.

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Acknowledgments

I am grateful to Masaki Aoyagi, Kazuo Ogawa and Fumio Ohtake for helpful suggestions and discussions. I also thank seminar participants for comments. The comments of Lawrence J. White (Editor) and two anonymous referees were extremely useful in the revision process. Any errors are mine. This work was supported by JSPS Grant-in-Aid Numbers 22730204, 22243022.

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  1. Department of Economics, Shiga University, Bamba 1-1-1, Hikone, Shiga, Japan

    Rieko Ishii

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  1. Rieko Ishii
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Correspondence to Rieko Ishii.

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Ishii, R. Bid Roundness Under Collusion in Japanese Procurement Auctions. Rev Ind Organ 44, 241–254 (2014). https://doi.org/10.1007/s11151-013-9408-6

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