A Computerized Approach to Detect Collusion in the Sealed-Bid Market

• Published date: 01 September 1977
• Date: 01 September 1977
• Author: Joseph C. Gallo
• DOI: 10.1177/0003603X7702200305
• Subject Matter: Article

A

COMPUTERIZED

APPROACH

TO

DETECT

COLLUSION

IN

THE

SEALED.BID

MARKET

by

JOSEPH

C.

GALLO·

Detection of bid collusion in the sealed-bid market has not

generally been the result of any systematic monitoring of

these markets. Instead, detection has been highly dependent

upon such factors as tips from public-minded individuals who

have knowledge of the existence of a conspiracy, large and

obvious price changes in the level of bids due to a temporary

breakdown in the ring, or the sharp-eyed public agency em-

ployee who detects an unusual

pattern

in bids.

This

paper

represents apreliminary attempt to systema-

tize the detection of price fixing in the sealed-bid market.

It

presents a set of computer programs which provide ameans

of continuously monitoring records of bidding in certain types

of sealed-bid markets. These computer programs process

bidding data in such a way as to enable an investigator to

detect various

patterns

of bidding which would be anticipated

if

bidders were conspiring and submitting rigged bids. The

limitations of the

data

restricted the author to developing

computer programs

that

would enable users to examine price

and quantity variables which would be artificially manipu-

lated ifaprice-fixing ring was present.

Acomputerized approach is particularly applicable to the

sealed-bid market

for

anumber of reasons.

First

of all, public

agencies frequently buy standardized and unchanging prod-

ucts over a considerable period of time. The computerized

approach is very well suited to a

market

with such a large

amount of

data

to be monitored. Second, the data, consisting

• Associate Professor of Economics, University of Cincinnati.

AUTHOR'S

NOTE:

The author is indebted to the Missouri State

Highway Commission and the U.S. Bureau of Public Roads for their

support in this study.

593

594

THE

ANTITRUST

BULLETIN

of successful

and

unsuccessful bids,

are

readily available to

economists, which facilitates the examination of non-competi-

tive bidding patterns. Third, as input to the computerized

approach as well as to the policing mechanism of the price-

fixing ring, the exact records of bids

are

published by the pur-

chasing agency. (See Table 1.)1 Fourth, the theories of col-

lusive oligopoly indicate

that

collusion is more likely to take

place in industries consisting of a small number of non-inno-

TABLE

1

Missouri State Highway

Division of Equipment

Jefferson City, Missouri

Request Number 1

Tabulation of Quotations received on May 31,1956 for Flake-

Type Spec.

"A"

100#

bags in carload lots, Calcium Chloride.

Firm

Pyramid Materials Co. $31.00

St. Louis, Missouri

Stewart

Sand

Material Co.

31.00

Kansas City, 'Missouri

St. Louis, Distributing Co., Inc.

St. Louis, Missouri

Thompson-Hayward Chemical Co.

Kansas City, Missouri

Consolidated Supply Co.

Joplin, Missouri

Abner S. Hood Chemical Co.

Kansas City, Missouri

Barado S. Page, Inc.

St. Louis, Missouri

American Builders Supply Co.

St. Louis, Missouri

31.00

31.00