Division of public contracts into lots and bid rigging: Can economic theory provide an answer?

Splitting large public contracts into lots fosters competition in the long and short run, and enhances the participation of small and medium enterprises (SMEs) in public procurement proceedings. However, the division of contracts into lots can also facilitate anticompetitive practices, such as bid rigging. In order to deal with this, economic theory has established two basic rules. The first one is that the number of lots should be smaller than the expected number of participants. The second one is that the contracting authorities should define at least one lot more than the number of incumbents and reserve it to new entrants. This paper discusses these rules and investigates to what extent they can indeed cope successfully with bid rigging. As it will be proved, they are not panacea for all cases of bid rigging and it is not always practically possible to apply them. Therefore, they need further elaboration and amendments. Suggestions will be made about how we could make them more effective. Some of these recommendations are based on ideas taken from the legal regime of USA.