Using the Moran’s I to detect bid rigging in Brazilian procurement auctions

Abstract

In 2015, a supposed bid-rigging cartel that operated in the Brazilian implantable cardiac devices market was announced and public authorities began to investigate it. This paper evaluates if there is systematic correlation between the bids that are placed by competitors in the sealed phase of procurement auctions, which is a situation that may suggest coordinated and fraudulent behaviour. By applying Moran’s I statistic to the residuals of controlled bid regressions and using a novel and public database, we show that the bids that were placed by the investigated companies have positive and statistically significant autocorrelation. In addition, when we separate the data into two subperiods, namely, the period in which the cartel probably existed (2005–2015) and the period in which the cartel probably did not exist due to the conclusion of a leniency agreement (2015–2017), the Moran’s I statistic only points to autocorrelation in the first sub-sample. Our result has remained robust when we eliminate transitional periods and use alternative economic screens. Finally, we show the main practical advantages and disadvantages of the implementation of the screen based on Moran’s I statistic.