Single Bidders and Tacit Collusion in Highway Procurement Auctions

Collusion in auctions can take different forms, such as refraining from bidding. Certain aspects of highway procurement auctions facilitate collusive outcomes. We collect data on asphalt paving auctions conducted in Kentucky from 2005-2007. We determine the potential service area of each asphalt plant and potential bidders for each paving project. We analyze firms’ bid participation decisions, including variables affecting costs as well as competitive and strategic effects. In many geographic markets where firms face only a few identifiable rivals, county boundaries serve as a coordinating mechanism for softening competition, significantly influencing firms’ decisions whether and how much to bid.