In the News
Collusion in Oligopoly - Ten construction firms fined total £60m
The Competition and Markets Authority have uncovered evidence of collusion in the construction industry, with a number of firms colluding over 19 contracts between 2013 and 2018, and being fined £60m as a result.
The collusion was to inflate the price of the contracts, and allow specified firms to win, with the 10 firms involved submitting so-called "cover bids" to conceal the absence of effective competition, and being compensated for this by the winning bidder. It's not the first time that this has happened - and it won't be the last.
The firms named include Keltbray, Brown and Mason, Cantillon, Clifford Devlin, DSM Demolition, Erith Contractors, John F Hunt, McGee, TE Scudder and Squibb, but apart from the fines, I'm always astonished that no individual is being prosecuted for this sort of activity: isn't it fraud?
What is bid rigging?
Bid-rigging is a type of anti-competitive behaviour in which businesses collude to manipulate the bidding process for contracts or projects. This practice is often used to ensure that a particular company wins a contract or project, even if they are not the most qualified or competitive bidder.
Bid-rigging can take many forms, including bid suppression, bid rotation, and market division. In bid suppression, one or more companies agree not to submit bids for a particular project, thereby ensuring that another company will win the contract. Bid rotation involves companies taking turns winning contracts, while market division involves companies agreeing to divide the market among themselves, with each company agreeing to bid on certain contracts and not on others.
Bid-rigging is illegal and can result in significant fines and penalties for the companies involved. It can also have a negative impact on competition, innovation, and ultimately harm consumers by reducing choices and increasing prices.
Bid rigging in an oligopoly
Bid-rigging is a common feature of oligopolistic markets because in these markets, a small number of firms dominate the industry and have significant market power. When there are only a few dominant players in the market, they may find it advantageous to collude and rig bids in order to maintain their market positions and increase their profits.
In an oligopoly, firms often compete on factors other than price, such as quality, innovation, or marketing. By colluding to rig bids, firms can ensure that they win contracts and maintain their market positions, even if they are not the lowest bidder. This allows them to continue to compete on factors other than price, and potentially charge higher prices to their customers.
Additionally, in an oligopolistic market, firms may be able to monitor each other's behavior more closely, making it easier to collude without being caught. Firms may also have relationships with each other, such as supplier-customer relationships or joint ventures, that make collusion more likely.