Bid Rigging

AAA

DEFINITION of 'Bid Rigging'

A scheme in which businesses collude so that a competing business can secure a contract for goods or services at a pre-determined price. Bid rigging stifles free-market competition, as the rigged price will be unfairly high. The Sherman Act of 1890 makes bid rigging illegal under U.S. antitrust law. Bid rigging is a felony punishable by fines, imprisonment or both.

INVESTOPEDIA EXPLAINS 'Bid Rigging'

There are four main types of bid rigging: bid suppression, complementary bidding, bid rotation and subcontracting. In the most common of these schemes, complementary bidding, some of the "competitors" submit offers that they know the buyer will reject because the price is too high or the terms are unacceptable in order to create the appearance of legitimate bidding while ensuring that a prearranged "competitor" will win the bid.

RELATED TERMS
  1. Sherman Antitrust Act

    Anti-monopoly U.S. legislation which attempted to increase economic ...
  2. Imperfect Competition

    A type of market that does not operate under the rigid rules ...
  3. Collusion

    A non-competitive agreement between rivals that attempts to disrupt ...
  4. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  5. Price Discrimination

    A pricing strategy that charges customers different prices for ...
  6. Federal Trade Commission - FTC

    An independent federal agency whose main goals are to protect ...
RELATED FAQS
  1. What is an antitrust law?

    Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers ... Read Full Answer >>
  2. How did Dow Chemical defeat an international monopoly in the 1900s?

    Herbert Henry Dow, a Canadian by birth, was a remarkable man. A chemist and an entrepreneur, Dow was one of the first people ... Read Full Answer >>
  3. Why was Microsoft subject to antitrust charges in 1998?

    On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft (Nasdaq:MSFT ). The charges were brought ... Read Full Answer >>
  4. What are examples of businesses that exhibit social responsibility?

    In the 21st century, companies that exhibit corporate social responsibility are winning high marks from consumers and investors ... Read Full Answer >>
  5. Why is social responsibility important to a business?

    Social responsibility is important to a business because it demonstrates to both consumers and the media that the company ... Read Full Answer >>
  6. Why are business ethics important?

    Several factors play a role in the success of a company that are beyond the scope of financial statements alone. Organizational ... Read Full Answer >>
Related Articles
  1. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  2. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  3. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  4. Personal Finance

    The 5 Most Feared Figures In Finance

    Gates, Soros, Icahn, Rockefeller and Morgan caused chills on Wall Street.
  5. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.
  6. Economics

    What is Price Discrimination?

    Price discrimination occurs when a company charges different customers different prices for the same goods or services.
  7. Economics

    What Does Asymmetric Information Mean?

    Asymmetric information describes a situation where one party in a transaction knows more than the other.
  8. Economics

    Understanding Money Laundering

    The process of creating the appearance that large amounts of money obtained from serious crimes actually originated from a legitimate source.
  9. Economics

    What is a Moral Hazard?

    The risk that a party to a transaction has not entered into the contract in good faith, or has provided misleading information.
  10. Economics

    Understanding Externality

    An externality is a consequence of an economic activity that is experienced by unrelated third parties.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center