What is 'Bid Rigging'
Bid rigging is 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.
BREAKING DOWN '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.