DETERRING BIDDER COLLUSION: AUCTION DESIGN COMPLEMENTS ANTITRUST POLICY

Bidder collusion is a serious problem in many auction markets and is generally illegal in the U.S., the EU, China, and many other countries. Such collusion can limit competition and decrease the revenue obtained by the seller (or buyer in the case of procurement) and distort the efficiency of the final allocation. This article provides an elementary, non-technical survey of theoretical and empirical research on bidder collusion with an emphasis on identifying factors that facilitate or inhibit collusive schemes as well as circumstances where detection is possible and an auctioneer's best response to bid rigging. The results of existing literature show that good auction design complements antitrust enforcement, and both play a role in deterring bidder collusion.