What is 'Bid Rigging'

Bid rigging is an illegal practice in which competing parties collude to choose the winner of a bidding process while others submit uncompetitive bids. Bid rigging stifles free-market competition, as the rigged price will be higher that what might have resulted from a competitive bidding process. As such, bid rigging is harmful to consumers and taxpayers who bear the cost of higher prices and procurement costs. The Sherman Antitrust Act of 1890 makes bid rigging illegal under U.S. antitrust law. Bid rigging is a felony in the U.S. punishable by fines, imprisonment, or both. It is also illegal in a majority of countries as a form of market manipulation.

Breaking Down 'Bid Rigging'

According the U.S. Federal Trade Commission, bid rigging can take many forms, though the most common by far is when companies decide in advance who will win a bidding process. Companies may take turns being a low bidder, one company may decide to not submit a bid, or may submit uncompetitive bids to manipulate the process. Bid rigging may also entail a conspiracy that involves using a competing company as subcontractor to subvert the bidding process or forming a joint venture with the sole purpose of submitting a single bid rather than achieving savings by combining resources or expertise.

Bid rigging can be found in auctions for cars and homes, construction projects, government procurement contracts, and nearly any industry that seeks to make sales by engaging in a bidding process. The FTC provides a tip sheet for procurement officers to help them identify bid rigging and when to notify regulators.

Bid Rigging Types

There are several types of bid rigging, some of which may be used in tandem:

  • Bid rotation: When bidders take turns at being the winning bidder, a form of market allocation.
  • Bid suppression: When some bidder sit out of a bidding process so another party can win a bid.
  • Complementary bidding: When uncompetitive bids are made to ensure that a certain bidder is selected. Also called "courtesy bidding" or "cover bidding."
  • Phantom bidding: Employed in auctions to compel legitimate bidders to bid higher than they normally would.
  • Buyback: A fraudulent practice in no-reserve auctions when a seller buys the auction item to prevent it from selling at too low a price.

Bid Rigging Example

In the 1950s, manufacturers General Electric and Westinghouse conspired to fix prices for industrial products in a case that involved both price rigging and bid rigging, as well secret meetings to pick winning and losing bids for orders in which winners rotated based on phases of the moon. It was uncovered by the Tennessee Valley Authority upon reviewing identical bids over many years in what were meant to be secret bidding processes. It resulted in fines and jail terms for companies and individuals involved.

  1. Bid Tick

    A bid tick is an indication of whether the latest bid price is ...
  2. Competitive Bid

    A competitive bid is a price submitted by a vendor or service ...
  3. Bid Wanted

    Bid wanted refers to an investor's announcement that the investor ...
  4. Bid Size

    Bid size represents the quantity of a security that is available ...
  5. Unsolicited Bid

    An offer made by an individual, company or group of investors ...
  6. Bid Price

    The price a buyer is willing to pay for a security. This is one ...
Related Articles
  1. Personal Finance

    How The Auction Market Works

    Here's a look into the online auction market and how to get yourself the best value possible on sites like eBay and Quibids.
  2. Investing

    Explaining Dutch Auction

    A Dutch auction is a public offering auction.
  3. Small Business

    What are antitrust laws?

    Learn about antitrust laws or "competition laws." These statutes protect consumers from predatory business practices by ensuring fair competition exists.
  4. Investing

    How To Read A T-Bill Quote

    If you want buy and sell US Treasury bills, you need to learn to read the quotes.
  5. Investing

    Baker Hughes Rig Count: Analyzing Trends in 2016 (BHI)

    Review Baker Hughes' rig count to identify trends in oil production. Find out what rig count and crude oil mix indicate about supply and demand in coming years.
  6. Insights

    Twitter Stock Falls 16.28% in Pre-Market Trading After Report Says Google, Apple Won't Bid (TWTR, AAPL)

    Three potential suitors are said to be not interested in Twitter. This leaves only Microsoft and Salesforce from among the names suggested to be interested in the company.
  7. Insights

    Oil Rigs Fall for First Time in 4 Months (BHI)

    Baker Hughes says the number of oil rigs operating in the US has fallen for the first time in four months.
  8. Investing

    Unilever Asks UK Govt. for ‘Level Playing Field’

    The company wants to extend the time allowed for takeover targets to defend themselves.
  9. Investing

    Comcast's $31B Sky Bid Could Start Bidding War

    Industry experts foresee Comcast and Fox entering a full-blown auction for the UK broadcaster.
  1. What do the numbers after the bid and ask numbers in stock quotes mean?

    These numbers are called the bid and ask sizes, and they represent the aggregate number of pending trades at the given bid ... Read Answer >>
  2. How do average costs compare among various oil drilling rigs?

    Learn the average costs to an oil producer for purchasing either land-based or offshore oil-drilling rigs and some factors ... Read Answer >>
  3. What do the "BxA" numbers on my brokerage's trading screen mean?

    The letters 'B' and 'A' in the notation BxA refer to bid and ask, respectively. When you look at online stock quote data, ... Read Answer >>
  4. Compute the offering price for a mutual fund with NAV of $1,200,000,000, an 8% front-end ...

    A. $1,304.35B. $1,200.00C. $1,196.35D. $1,296.00 Correct answer: A"B" is the bid price, not the offering price; "C" is another ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center