Cartels, Competition and Public Procurement

Cartels, Competition and Public Procurement

Law and Economics Approaches to Bid Rigging

New Horizons in Competition Law and Economics series

Stefan E. Weishaar

Stefan Weishaar explores the ways in which economic theory can be used to mitigate the adverse effects of bid rigging cartels. The study sheds light on one of the vital issues for achieving cost-effective public procurement – which is itself a critical question in the context of the global financial crisis. The book comprehensively examines whether different laws deal effectively with bid rigging and the ways in which economic theory can be used to mitigate the adverse effects of such cartels. The employed industrial economics and auction theory highlights shortcomings of the law in all three jurisdictions – the European Union, China and Japan – and seeks to raise the awareness of policymakers as to when extra precautionary measures against bid rigging conspiracies should be taken.

Chapter 3: Industrial economics

Stefan E. Weishaar

Subjects: economics and finance, competition policy, law and economics, public finance, law - academic, competition and antitrust law, law and economics, politics and public policy, public policy

Extract

This chapter seeks to give a general introduction to the economic field dealing with competition: industrial economics. The chapter is subdivided into three interrelated parts. The first (in Section 2) introduces the field of industrial economics. It reviews the Structure-Conduct-Performance paradigm and presents some of the empirical findings regarding the link between industry structure, barriers to entry and profitability of enterprises. In the course of an historical overview, the Chicago School will be introduced before arriving at the new industrial economics approach. The second part of the chapter (Section 3) depicts the basic concept of the social welfare cost of a simple static monopoly model and the economic concepts of cartelization, and reviews their implications for the general public. Section 4 focuses specifically on the industrial economics insights regarding bid rigging conspiracies and the lessons that public procurement entities can derive from them.

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