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Bid Rigging In Public Procurement Of Generic Drugs In Mexico

 |  August 1, 2013

Ernesto Estrada, Samuel Vazquez, Jul 28, 2013

This document studies bid rigging in public procurement of generic drugs in Mexico. The study is based on the outcomes of a series of public auctions for generic drugs held in 52 different locations between 2003 and 2008. By applying price and market share screenings, we identify many drugs where lowest bids tend to be identical across auctions regardless of winner, location or contract volume; and market shares quickly converge over time. Additionally, bids dropped and the above pattern disappeared after aggressive entry or procurement consolidation occurred. These findings triggered a formal investigation by the Mexican antitrust agency of two of the largest families of drugs: insulin and saline solutions. These collusive patterns and other indirect evidence gathered during the investigation, led to issue a decision by the agency of illegal bid rigging in both cases. This decision was challenged before Mexican courts, which confirmed it.

Cartels can significantly increase prices. For example, Connor (2010) analyzes studies and judicial decisions on 381 cartelized markets worldwide and estimates a long-run median overcharge of 23.3 %. This result has contributed to creating an international consensus to strengthen cartel prosecution.

Because of their secretive nature, competition agencies have focused prosecution efforts on developing cartel detection tools. The most important are leniency programs that promote collaboration of cartel members in exchange for reductions or elimination of sanctions. Other important sources of detection are complaints from disgruntled members or cartel employees, purchasers’ or the general public’s awareness and consequent complaints of suspicious collusive activities.