Thursday, July 12, 2012

Antitrust and Unfair Competition, part 3: Bid Rigging.

Bid rigging occurs when a "commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid." [1] This is sometimes done to meet particular quotas regarding how much business must go through the public bidding process, or as a favor to another party. It is also a type of price fixing among competitors to ensure that the party who is supposed to "win" a contract, in fact wins the contract.

In the public sector context, bid rigging results in harm to the agency seeking the bids, and the public. The agency is harmed because they will receive a higher price than they would through a true competitive bid process. The public is harmed because in the public sector context, they are the taxpayers paying the higher price.

In the private sector context, bid rigging still results in harm to the company seeking bids. It does not affect the public, but it would have an ancillary effect on shareholders of publicly-traded companies. The company would have to pay a higher price to a contractor or vendor for goods or services. This would ultimately lead to lower amounts of cash that could be capitalized and distributed to shareholders. Even if the cost to shareholders would be almost negligible each time the bid rigging occurs, its accumulation would likely have a noticeable impact if it became a part of the company's culture in its purchasing department.

You may or may not have come across an incident of bid rigging in your business dealings. Bid rigging is not necessarily common, but it is not unheard of either. People often try to "team up" with other people in other businesses. Sometimes, the tactics they use in implementing their strategy will run afoul of antitrust law. Technical antitrust violations occur much more frequently than one might initially think. People do not always notice the violations as unethical conduct, because they are helping someone they know. They may not recognize that what they are doing is foreclosing competition from otherwise worthy competitors.

[1] Wikipedia, Bid rigging (last visited July 11, 2012).

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