Kamikazes in Public Procurements: Bid-Rigging and Real Non-Market Outcomes
HKUST IEMS Thought Leadership Brief No. 106
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Bid-rigging in public procurements has severe implications beyond fiscal costs, directly affecting the quality of essential public services. In "kamikaze" strategy, the lowest bidder withdraws after the auction concludes, allowing the second-lowest bidder to win at higher prices. This leads to significant overpricing compared to similar auctions where it is not present. Procurement prices are 16 to 18 percent higher in auctions with kamikaze firms. This behavior correlates with adverse real non-market outcomes: higher mortality rates in public hospitals and increased road accidents after maintenance contracts.
About the author
Dimas Mateus Fazio is an Assistant Professor in the Department of Finance at the National University of Singapore - NUS Business School. He earned his Ph.D. in Finance from London Business School in 2020, preceded by an MRes in Finance from the same institution (2016), a Master's degree in Economics from the University of São Paulo (2014), and a Bachelor's degree in Economics from the University of Brasília (2012). Professor Fazio's research spans Empirical Corporate Finance, Public Economics, Banking, Networks, and Labor Economics, with particular expertise in housing markets, government procurement, and financial intermediation. His work has been published in leading journals including the Review of Financial Studies, Journal of Banking & Finance, and Economic Modelling. Professor Fazio serves as an Associate Editor for EconomiA and on the scientific committees of several academic organizations. He brings practical experience from his work at the Brazilian Antitrust Commission and the Brazilian Central Bank to his academic research.
Alminas Žaldokas is currently an Associate Professor in Finance at the National University of Singapore (NUS). Prior to this appointment, Alminas Žaldokas was at the Hong Kong University of Science and Technology (HKUST). Professor Žaldokas received his PhD in Finance at INSEAD in 2012. Professor Žaldokas’s research focuses on the interaction between firm decisions in the financial and in the product markets. In particular, he studies corporate finance decisions that relate to the firm investment in innovation, the formation of collusive arrangements between firms, and the facilitation of ESG practices. This research has been published in top academic journals such as Journal of Financial Economics, Review of Financial Studies, Journal of Accounting Research, Management Science, RAND Journal of Economics, Journal of International Economics, and Journal of Financial Intermediation. His work on international antitrust laws and M&A transactions was awarded Jerry S. Cohen Award for Antitrust Scholarship for the best antitrust work in 2019 while his work on corporate taxes and innovation was awarded Vladas Jurgutis prize in 2022 for the best economics research article written by a Lithuanian researcher over the past five years.
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