When rivals team up in procurement: Does it distort competition?

The purpose of this article is to offer insights to courts and competition authorities on how to assess horizontal agreements to team up in a procured project. We argue that agreements that are specified in advance of bidding should be evaluated against the counterfactual whereby firms negotiate subcontracts after bidding has ended. Following this approach, we challenge the commonly held viewpoint that joint bidding distorts competition if the bidding consortium members could each bid solo. We also question the need for bidding consortium members to integrate their operations.

I. Introduction 1. The question of how to promote competition in public and private procurement is of great importance. Bosio et al. (2020), for example, report that expenditures in public procurement amount to no less than 12% of world GDP. Whereas direct contracting permits discretion to deal with unforeseen events, the bulk of all spending in procurement happens through competitive auctions. [1] By letting bidders compete, well-designed auctions are capable of selecting the most efficient sellers. Furthermore, auctions also serve the aim of the procurer to limit expenditures. 2. In this article, we focus on the competitive effects of agreements between rival firms to team up in a procured project. Such horizontal agreements are common in a variety of major industries, such as oil

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Authors

  • University of Antwerp
  • Hanken School of Economics (Helsinki)

Quotation

Jan Bouckaert, Geert Van Moer, When rivals team up in procurement: Does it distort competition?, May 2022, Concurrences N° 2-2022, Art. N° 106201, pp. 58-65

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