Bid Rigging - Explained
What is Bid Rigging?
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Table of ContentsWhat is Bid Rigging?How does Bid Rigging Work? Bid Rigging TypesBid Rigging ExampleAcademic Research on Bid Rigging
What is Bid Rigging?
Bid rigging is an unethical practise that occurs in the process of bidding, this is an act whereby businesses (competing parties) conspire with one another to execute non-competitive bids. In this situation, the competing parties conspire and choose a party to secure the contract using an uncompetitive bid.
In most countries, bid-rigging is illegal as it violates the provisions of free-market competition and ultimately antitrust laws. Usually, prices in a rigged bidding process are higher than prices obtainable in a competitive and free-market process. Being an unethical act that thrives on collusion, bid rigging is often organized by corrupt officials of firms.
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How does Bid Rigging Work?
In the United States, the antitrust law describes bid rigging s an illegal act, this is contained in the Sherman Antitrust Act of 1890. It is an offense that laws of many states frown against, the common punishments for bid-rigging are imprisonment, payment of fines or a combination of both.
There are many forms of bid-rigging, but the common practice is one in which competing parties reach an agreement to allow one party to win the bid at raised prices. In some cases, however, bid-rigging can occur between subcontractors whereby a conspiracy is formed in order to submit a single bid at an inflated price.
Bid Rigging Types
Generally, bid-rigging can occur in car auctions, auction of properties, construction works, sale of homes and in government contracts. There are several types of bid-rigging, the most popular ones are;
- Bid Suppression: This is a case where some competing parties opt-out of a bidding process so that a party can win the bid.
- Phantom bidding where bidders are solicited to make higher bids than they ordinarily would.
- Bid rotation: entails taking of turns between bidders or competing parties.
- Buyback: A bid-rigging where a seller purchases the item being auctioned to avoid selling them at lower prices.
- Complementary bidding or courtesy bidding or cover bidding: in this type of bid-rigging, a particular bidder is selected to win the bid.
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