Creating the Illusion of Competition

In the qualification stage for selecting potential suppliers, the buyer (contracting authority) excludes “extra” companies. Only two or more controlled companies are allowed to submit price proposals. This scenario involves collusion between several companies and the buyer to create the illusion of competition. These companies may be affiliates or colluding. One characteristic sign is the low cost-saving at the end of the procurement process; the winning price proposal is usually close to the initial procurement price.

To identify such high-risk procurements, it’s essential to gather data on purchases where:

• The difference between the planned price and the winning bid is less than 1% (the range for analysis can be adjusted).
• Shell competitors are used to mimic competition. These types of companies submit a large number of bids, initially intended to lose to the partner company. A criterion to identify a shell competitor is proposed (more than 15 bids and over 95% losses). If the analyzed company often participates in procurements with a shell competitor, there may be signs of simulated competition.
• Unlike the top losers, rotating wins imply that each colluding participant wants to win, but a strategy has been set where they give up wins in some procurements to secure wins in others. Given that each is concerned about their benefit, the market share, on average, doesn’t change over an extended period when applying this strategy. It is necessary to calculate data on the market share within specific markets and identify those where changes don’t occur.