Screening for Bid Rigging with Frequent Losers¶
A Participation-Based Screen for Public Procurement
Insper Institute of Education and Research, Sao Paulo, Brazil
3.6--7.7% Conditional price association with frequent-loser presence (cross-fit to CEM matching)
Abstract¶
Minimum-bidder rules in public procurement give cartels a reason to deploy cover bidders---firms that show up repeatedly with no intention of winning. We exploit this behavioral footprint to build a participation-based screen: frequent losers (FL), firms that never win yet bid abnormally often. The screen requires only win/loss records, making it deployable in settings where bid microdata are unavailable. In Sao Paulo's electronic procurement (4.5 million tender-items, 2009--2019), it achieves AUC = 0.94 against competition-authority co-participation (0.54 within participation-count bands, confirming that volume contributes substantially to the unconditional figure), complements bid-level tools (correlation 0.06), and flags environments with 3.6--7.7% higher conditional prices. The price association is concentrated in competitive markets and where cover bidding is voluntary rather than forced by the minimum-bidder constraint---suggesting strategic deployment, not mere rule compliance. We propose a three-stage enforcement pathway (screen, triage, investigate) that allocates investigative resources toward the procurement environments where the association is strongest and oversight weakest.
JEL Classification: D44 D73 H57 K21 L41
Keywords: bid rigging cover bidding public procurement cartel screening frequent losers
Key Findings¶
3.6--7.7% conditional price association
FL-present tenders exhibit 3.6--7.7% higher conditional prices across four estimation approaches: cross-fit (3.6%), IPW (5.5%), OLS with item + year + PBU FE (6.4%), and CEM matching (7.7%). The estimates cluster rather than scatter, indicating a stable association across designs.
AUC = 0.94 against CADE convictions
The FL screen achieves AUC = 0.94 against competition-authority convictions, versus 0.79 for an Imhof-style bid-level proxy. FL firms co-participate with convicted cartelists at 3.5 times the baseline rate (\(p < 0.001\)). The two screens capture largely non-overlapping information (correlation 0.06); naively combining them into a single score degrades detection to AUC = 0.61, confirming that they operate on different dimensions and are best deployed sequentially.
Coordinated cover bidding (Regime 2)
BIC strongly favors coordinated cover bidding (\(\Delta\)BIC = \(-91{,}473\)): FL bids are 28% less dispersed than non-FL bids (\(\sigma_c / \sigma_g = 0.72\)). The price association concentrates in competitive markets (0.126) and vanishes in concentrated ones (\(-0.018\)), consistent with strategic complementarity (\(\hat{\gamma} = 0.69 > 0\)).
Three-stage enforcement pathway
The FL screen requires only participation and outcome data (no bid values). We propose a screen--triage--investigate pathway that exploits a 12.5x gradient in the FL--price association across PBU size quartiles to direct investigative resources where oversight is weakest.