Collusion in Procurement Auctions: Structural Estimation of Bidders Costs

In this paper, the aim is to analyse the existence of collusion in asym-metric asphalt-procurement auctions. Firms that behave competitively should have private costs that are independent, conditional on available rm- and auction-speci\u85c information. The hypothesis of conditional in-dependence can be tested and if it is rejected, a possible explanation is collusion. Using a constrained strategy equilibrium concept in solving for equilibrium bid strategies and \u85rms private costs makes it possible to test the hypothesis of conditional independence while at the same time controlling for \u85rms strategic considerations. The analysis is based on bid data from procurement auctions carried out in Sweden during the 1990s. The \u85ndings are that the hypothesis of conditional independence can be rejected for about half the \u85rm-pairs that are tested. Given that the model is correctly speci\u85ed, this suggests that collusive behaviour is plausible in the investigated market