Dr Dev Kambhampati | DOJ Pricing- Antitrust Primer
Dr Dev Kambhampati | DOJ Pricing- Antitrust Primer
Published on: Mar 4, 2016
Transcripts - Dr Dev Kambhampati | DOJ Pricing- Antitrust Primer
PRICE FIXING, BID RIGGING, AND MARKET ALLOCATION SCHEMES:
WHAT THEY ARE AND WHAT TO LOOK FOR
An Antitrust Primer
American consumers have the right to expect
the benefits of free and open competition — the
best goods and services at the lowest prices.
Public and private organizations often rely on a
competitive bidding process to achieve that end.
The competitive process only works, however,
when competitors set prices honestly and indepen-
dently. When competitors collude, prices are
inflated and the customer is cheated. Price fixing,
bid rigging, and other forms of collusion are illegal
and are subject to criminal prosecution by the
Antitrust Division of the United States Department
In recent years, the Antitrust Division has
successfully prosecuted regional, national, and
international conspiracies affecting construction,
agricultural products, manufacturing, service
industries, consumer products, and many other
sectors of our economy. Many of these prosecu-
tions resulted from information uncovered by
members of the general public who reported the
information to the Antitrust Division. Working
together, we can continue the effort to protect and
promote free and open competition in the market-
places of America.
Federal Antitrust Enforcement
Enacted in 1890, the Sherman Act is among
our country’s most important and enduring pieces
of economic legislation. The Sherman Act prohibits
any agreement among competitors to fix prices, rig
bids, or engage in other anticompetitive activity.
Criminal prosecution of Sherman Act violations is
the responsibility of the Antitrust Division of the
United States Department of Justice.
Violation of the Sherman Act is a felony
punishable by a fine of up to $10 million for
corporations, and a fine of up to $350,000 or 3
years imprisonment (or both) for individuals, if the
offense was committed before June 22, 2004. If the
offense was committed on or after June 22, 2004,
the maximum Sherman Act fine is $100 million for
corporations and $1 million for individuals, and the
maximum Sherman Act jail sentence is 10 years.
Under some circumstances, the maximum potential
fine may be increased above the Sherman Act
maximums to twice the gain or loss involved. In
addition, collusion among competitors may
constitute violations of the mail or wire fraud statute,
the false statements statute, or other federal felony
statutes, all of which the Antitrust Division
In addition to receiving a criminal sentence, a
corporation or individual convicted of a Sherman
Act violation may be ordered to make restitution to
the victims for all overcharges. Victims of bid-
rigging and price-fixing conspiracies also may seek
civil recovery of up to three times the amount of
Forms of Collusion
Most criminal antitrust prosecutions involve
price fixing, bid rigging, or market division or
allocation schemes. Each of these forms of
collusion may be prosecuted criminally if they
occurred, at least in part, within the past five years.
Proving such a crime does not require us to show that
This primer briefly
describes the most
the conspirators entered into a formal written
or express agreement. Price fixing, bid rigging, and
other collusive agreements can be established
either by direct evidence, such as the testimony of
a participant, or by circumstantial evidence, such
as suspicious bid patterns, travel and expense
reports, telephone records, and business diary
Under the law, price-fixing and bid-rigging
schemes are per se violations of the Sherman Act.
This means that where such a collusive scheme
has been established, it cannot be justified under
the law by arguments or evidence that, for example,
the agreed-upon prices were reasonable, the
agreement was necessary to prevent or eliminate
price cutting or ruinous competition, or the
conspirators were merely trying to make sure that
each got a fair share of the market.
Price fixing is an agreement among competitors
to raise, fix, or otherwise maintain the price at
which their goods or services are sold. It is not
necessary that the competitors agree to charge
exactly the same price, or that every competitor in a
given industry join the conspiracy. Price fixing can
take many forms, and any agreement that restricts
price competition violates the law. Other examples
of price-fixing agreements include those to:
• Establish or adhere to price discounts.
• Hold prices firm.
• Eliminate or reduce discounts.
• Adopt a standard formula for computing
• Maintain certain price differentials
between different types, sizes, or
quantities of products.
• Adhere to a minimum fee or price
• Fix credit terms.
• Not advertise prices.
In many cases, participants in a price-fixing
conspiracy also establish some type of policing
mechanism to make sure that everyone adheres to
Bid rigging is the way that conspiring compete-
tors effectively raise prices where purchasers —
often federal, state, or local governments —
acquire goods or services by soliciting competing
Essentially, competitors agree in advance who
will submit the winning bid on a contract being let
through the competitive bidding process. As with
price fixing, it is not necessary that all bidders
participate in the conspiracy.
Bid rigging also takes many forms, but bid-
rigging conspiracies usually fall into one or more of
the following categories:
Bid Suppression: In bid suppression schemes,
one or more competitors who otherwise would be
expected to bid, or who have previously bid, agree to
refrain from bidding or withdraw a previously
submitted bid so that the designated winning
competitor’s bid will be accepted.
Complementary Bidding: Complementary
bidding (also known as “cover” or “courtesy”
bidding) occurs when some competitors agree to
submit bids that either are too high to be accepted
or contain special terms that will not be acceptable to
the buyer. Such bids are not intended to secure
the buyer’s acceptance, but are merely designed to
give the appearance of genuine competitive
bidding. Complementary bidding schemes are the
most frequently occurring forms of bid rigging, and
they defraud purchasers by creating the appear-
ance of competition to conceal secretly inflated
A corporation or
convicted of a
violation may be
ordered to make
restitution to the
victims for all
Victims of bid-
may seek civil
recovery of up to
three times the
Bid Rotation: In bid rotation schemes, all
conspirators submit bids but take turns being the
low bidder. The terms of the rotation may vary; for
example, competitors may take turns on contracts
according to the size of the contract, allocating
equal amounts to each conspirator or allocating
volumes that correspond to the size of each
conspirator company. A strict bid rotation pattern
defies the law of chance and suggests collusion is
Subcontracting: Subcontracting arrangements
are often part of a bid-rigging scheme. Competitors
who agree not to bid or to submit a losing bid
frequently receive subcontracts or supply con-
tracts in exchange from the successful low bidder.
In some schemes, a low bidder will agree to
withdraw its bid in favor of the next low bidder in
exchange for a lucrative subcontract that divides
the illegally obtained higher price between them.
Almost all forms of bid-rigging schemes have
one thing in common: an agreement among some
or all of the bidders which predetermines the
winning bidder and limits or eliminates competition
among the conspiring vendors.
Market division or allocation schemes are
agreements in which competitors divide markets
among themselves. In such schemes, competing
firms allocate specific customers or types of
customers, products, or territories among them-
selves. For example, one competitor will be allowed
to sell to, or bid on contracts let by, certain
customers or types of customers. In return, he or
she will not sell to, or bid on contracts let by,
customers allocated to the other competitors. In
other schemes, competitors agree to sell only to
customers in certain geographic areas and refuse
to sell to, or quote intentionally high prices to,
customers in geographic areas allocated to
Detecting Bid Rigging, Price Fixing,
And Other Types Of Collusion
Bid rigging, price fixing, and other collusion
can be very difficult to detect. Collusive agree-
ments are usually reached in secret, with only the
participants having knowledge of the scheme.
However, suspicions may be aroused by unusual
bidding or pricing patterns or something a vendor
says or does.
Bid or Price Patterns
Certain patterns of bidding or pricing conduct
seem at odds with a competitive market and
suggest the possibility of collusion:
• The same company always wins a
particular procurement. This may be more
suspicious if one or more companies
continually submit unsuccessful bids.
• The same suppliers submit bids and each
company seems to take a turn being the
• Some bids are much higher than published
price lists, previous bids by the same firms,
or engineering cost estimates.
• Fewer than the normal number of
competitors submit bids.
• A company appears to be bidding
substantially higher on some bids than on
other bids, with no apparent cost
differences to account for the disparity.
• Bid prices drop whenever a new or
infrequent bidder submits a bid.
• A successful bidder subcontracts work to
competitors that submitted unsuccessful
bids on the same project.
• A company withdraws its successful bid
and subsequently is subcontracted work by
the new winning contractor.
• Identical prices may indicate a price-fixing
conspiracy, especially when:
• Prices stay identical for long periods
• Prices previously were different.
• Price increases do not appear to be
supported by increased costs.
• Discounts are eliminated, especially in a
market where discounts historically were
• Vendors are charging higher prices to local
customers than to distant customers. This
may indicate local prices are fixed.
Suspicious Statements or Behavior
While vendors who collude try to keep their
arrangements secret, occasional slips or careless-
ness may be a tip-off to collusion. In addition,
certain patterns of conduct or statements by
bidders or their employees suggest the possibility
of collusion. Be alert for the following situations,
each of which has triggered a successful criminal
• The proposals or bid forms submitted by
different vendors contain irregularities
(such as identical calculations or spelling
errors) or similar handwriting, typeface, or
stationery. This may indicate that the
designated low bidder may have prepared
some or all of the losing vendor’s bid.
• Bid or price documents contain whiteouts
or other physical alterations indicating
last-minute price changes.
• A company requests a bid package for
itself and a competitor or submits both its
and another’s bids.
• A company submits a bid when it is
incapable of successfully performing the
contract (likely a complementary bid).
• A company brings multiple bids to a bid
opening and submits its bid only after
determining (or trying to determine) who
else is bidding.
• A bidder or salesperson makes:
• Any reference to industry-wide or
association price schedules.
• Any statement indicating advance
(non-public) knowledge of
• Statements to the effect that a
particular customer or contract
“belongs” to a certain vendor.
• Statements that a bid was a “courtesy,”
“complementary,” “token,” or “cover”
• Any statement indicating that vendors
have discussed prices among
themselves or have reached an
understanding about prices.
A Caution About Indicators of Collusion
While these indicators may arouse suspi-
cion of collusion, they are not proof of collusion.
For example, bids that come in well above the
estimate may indicate collusion or simply an
incorrect estimate. Also, a bidder can lawfully
submit an intentionally high bid that it does not
think will be successful for its own independent
business reasons, such as being too busy to
handle the work but wanting to stay on the
bidders’ list. Only when a company submits an
intentionally high bid because of an agreement
with a competitor does an antitrust violation exist.
Thus, indicators of collusion merely call for further
investigation to determine whether collusion exists
Collusion is more
likely to occur if
there are few
sellers. The fewer
the sellers, the
easier it is for
them to get
agree on prices,
or whether there is an innocent explanation for the
events in question.
Conditions Favorable To Collusion
While collusion can occur in almost any
industry, it is more likely to occur in some indus-
tries than in others. An indicator of collusion may
be more meaningful when industry conditions are
already favorable to collusion.
• Collusion is more likely to occur if there
are few sellers. The fewer the number of
sellers, the easier it is for them to get
together and agree on prices, bids,
customers, or territories. Collusion may
also occur when the number of firms is
fairly large, but there is a small group of
major sellers and the rest are “fringe”
sellers who control only a small fraction of
• The probability of collusion increases if
other products cannot easily be substituted
for the product in question or if there are
restrictive specifications for the product
• The more standardized a product is, the
easier it is for competing firms to reach
agreement on a common price structure. It
is much harder to agree on other forms of
competition, such as design, features,
quality, or service.
• Repetitive purchases may increase the
chance of collusion, as the vendors may
become familiar with other bidders and
future contracts provide the opportunity
for competitors to share the work.
• Collusion is more likely if the competitors
know each other well through social
connections, trade associations, legitimate
business contacts, or shifting employment
from one company to another.
• Bidders who congregate in the same
building or town to submit their bids have
an easy opportunity for last-minute
What You Can Do
Antitrust violations are serious crimes that can
cost a company hundreds of millions of dollars in
fines and can send an executive to jail for up to ten
years. These conspiracies are by their nature
secret and difficult to detect. The Antitrust
Division needs your help in uncovering them and
bringing them to our attention.
If you think you have a possible violation or
just want more information about what we do,
contact the Citizen Complaint Center of the
1-888-647-3258 (toll-free in the U.S. and
Canada) or 1-202-307-2040
Citizen Complaint Center
Antitrust Division, U.S. Dept. of Justice
950 Pennsylvania Ave. NW, Suite 3322
Washington, DC 20530
This Primer provides only internal Department
of Justice guidance. It is not intended to, does not,
and may not be relied upon to create any rights,
substantive or procedural, enforceable at law by any
party in any matter civil or criminal. No limitations
are hereby placed on otherwise lawful investigative
and litigation prerogatives of the Department of
are serious crimes
that can cost a
of millions of
dollars in fines and
can send an
executive to jail
for up to ten years.
are by their nature
secret and difficult
your help in
and bringing them
to our attention.