Embodied Cost of Collusive Bidding: Evidence from China’s Construction Industry

Abstract

Collusive bidding is regarded as one of the most socially harmful, anticompetitive, and illegal practices in the construction sector. The process of collusion is hidden from public sight, making it difficult to calculate its cost. A model was developed in this study for calculating the embodied cost of the convenor in collusive bidding cases using the regression analysis technique. The model was tested using 254 publicized collusion cases in China, and the results were verified by online interviews with a fair number of experts with extensive experience. It was found that the embodied collusion cost composed of side payments and administrative penalties has a positive relationship with awarding price. Also, from a box plot, it was found that the embodied collusion cost has a low growth trajectory for lower awarding prices, but remains stable for higher awarding prices. This study provides an effective tool for antitrust authorities to detect the existence of additional cartel members by comparing the difference between the reported and calculated values of side payments.