Most Read Contributor in Hong Kong, September 2016
Keywords: competition, Hong Kong, market
sharing, bid rigging
Cardinal Sin No. 4 – Bid Rigging
Last week we looked at the Cardinal Sin of market sharing. This
week we discuss Cardinal Sin No. 4 – bid rigging.
Bid rigging refers to agreements between
competitors not to compete for a tender, and instead allowing a
designated winner to be awarded the project or contract.
WHY RIG BIDS?
To prevent competitors from undercutting each other, and enable
each competitor to charge a higher price or lower the quality of
goods or services offered.
WHAT DOES BID RIGGING ENTAIL?
A "rigged" tender or bid is one that has a
predetermined result engineered by the competing participants in
the tender, i.e., there is one "chosen winner" and others
agree to be "designated losers". Below are some examples
of how bids are commonly rigged:
Sham bidding: the designated losers submit
bids that are bound to be rejected:
Cover bidding: the designated losers submit bids that are less
attractive due to higher prices or lower quality.
Non-conforming bids: the designated losers submit bids that do
not conform to the tender specifications.
Bid rotation: competitors take turns being the
Bid suppression or withdrawal: the designated
losers either refrain from bidding, or withdraw their bid to allow
the chosen winner to win.
WHAT DO THE "DESIGNATED LOSERS" GET OUT OF IT?
Participants in a bid rigging agreement benefit in the following
Bid rigging may be part of a market sharing agreement, where
competitors maintain their allocated share of the market by
refraining from participating in tenders, or by always submitting
sham bids in each others' share of the market.
The chosen winner compensates the designated losers by letting
them win another tender or appointing them as a subcontractor.
The chosen winner pays the designated losers a fee.
This concludes our discussion of the Cardinal Sins: price
fixing, output limitation, market sharing and bid rigging.
Remember, these are the most harmful forms of anti-competitive
conduct that will almost always fall foul of the First Conduct
Next week we look at information exchange among competitors, a
complex but intriguing area of competition law.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
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