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AN-009: Network proximity and product-portfolio HHI

Intuition (plain-language)

Two facts that look contradictory until you think like a cartel: cobidders specialize in tighter product portfolios (HHI 0.380 vs 0.288), yet the markets where they appear are more contestable on the winner side (HHI 0.178 vs 0.303). Cover bidding is most useful exactly where winning looks competitive — a lone-bidder auction fools no one. So a cartel concentrates its designated losers in a few focal verticals and deploys them where simulated rivalry buys the most cover.

Question

Do cobidders inside the FL14 stratum operate in more concentrated product portfolios than non-cobidder FLs, and are FL-flagged winners less concentrated overall?

Design

  • Sample: FL14 stratum, with cobidder vs non-cobidder split; complementary winner-side HHI from the consolidated panel.
  • Outcomes:
  • Cobidder profile: product-portfolio HHI per firm.
  • Winner-side: HHI faced by winners when FL bidders are present vs not.

Results

Cobidder vs non-cobidder FL product concentration:

Metric Cobidders Non-cobidder FL Cohen's d
Product-portfolio HHI 0.380 0.288 +0.39

Winner-side concentration (FL-bidder presence indicator):

Setting HHI faced by winners
FL-bidder present 0.178
Non-FL bidder 0.303

Macros: \valBridgeHHICob, \valBridgeHHIFLnc, \valBridgeHHID, \valFLwinnerHHI, \valNonFLwinnerHHI.

Auxiliary bid-level ratios (from the consolidated v8 panel): \valFLBidWinnerRatio = 1.846 (FL bid/winner ratio) vs \valNonFLBidWinnerRatio = 1.426 (non-FL).

Network HHI by class

Figure: product-portfolio HHI distribution across the four firm classes (cobidder, FL_non_cobidder, AL_non_FL, winner_other). Cobidders sit at HHI 0.380 — between FL_non_cobidder (0.288) and AL_non_FL (0.719). The within-FL14 separation (cobidder vs FL_non) is the key contrast for H:cobidder-profile-distinct.

Network split: cobidder vs non-cobidder FL bidding patterns

Figure: network-graph split showing cobidder vs non-cobidder FL positioning relative to direct CADE defendants. Cobidders cluster closer to direct anchors; non-cobidder FLs are dispersed across unrelated buyers.

Interpretation

Two complementary readings:

  1. Within-FL cobidders are more product-concentrated than non- cobidder FLs (0.380 vs 0.288), consistent with focal-portfolio cover bidding rather than diffuse high-volume losing.
  2. FL-bidder-present markets are less concentrated on the winner side (0.178 vs 0.303): the markets where FL bidders show up are more contestable in their winner distribution. This is the scope context for the price-scope reading (AN-019, H:price-scope-sign-reversal).

The two patterns sit together: cobidders are deployed against a few focal product verticals (high own-HHI), but in those verticals the winner side is competitive (low winner-HHI). The cover-bidding role is exactly to insert losers in a competitive winner environment.

Follow-ups

  • Decomposition by sub-period.
  • Sensitivity to alternative network-distance definitions (1-hop vs 2-hop).
  • Heterogeneity in the unified-mechanism quadrants (AN-024).