APPC Homepage

We examine the effect of bid rigging under the limited lowest price bidding system that divides intervals of bidding prices. A main characteristic of the limited lowest price bidding system is that a reserved price is randomly determined and there is not a pure Nash equilibrium about choosing bidding prices. Thus, bidding firms have uncertainty about a winning price and have the incentive to participate in collusion in order to ensure results from bidding. This type of bid rigging reduces the uncertainty by alleviating fluctuation of winning prices and restricts the winning probability of competitive bidding firms by increasing the winning probability of collusive bidding firms. In conclusion, this bid rigging hinders the efficient allocation of resources and turns a market situation into a monopoly, resulting in anti-competitive effects.

Sei Beom Won
(Economic Analysis Division, Korea Fair Trade Commission)

[Korean journal of industrial organization, Vol. 29, 2021]