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This paper studies bid-rigging in auctions with bidder preselection. We
develop a theoretical model to analyze the optimal behavior of partial
bid-rigging cartels and show how commonly used two-stage auction
formats, in which the first stage is used to preselect bidders, may be
exploited. Based on our theoretical results, we construct a collusion
marker reflecting the optimal cartel strategy and, using administrative
data on public procurement auctions in Slovakia, we identify bidders
suspected of collusion. We show that bidder preselection allows cartels
to exclude competitive rivals and thereby increase procurement costs
above what would be possible without preselection.
