Competition Matters
Media > Newsletters > Competition Matters > Spring 2015 > Case Study: Bid-rigging on School Milk Contracts

Competition Matters RSS feeds

Case Study: Bid-rigging on School Milk Contracts

One of the best ways to detect and deter future bid-rigging is to learn from past schemes that have been uncovered and halted. Competition Matters will periodically feature case studies from some of the Ohio Attorney General’s prior antitrust enforcement efforts regarding public contracts. In this edition, we highlight Ohio’s school milk antitrust litigation.

In 1993, executives of two dairies confessed to rigging bids with their competitors on contracts for the sale of milk to public schools in southwestern Ohio. The conspiracy they described was based upon incumbency. The conspirators agreed not to compete with the prior year’s winner of any given school district account – the incumbent – for that district’s business. Not only did the conspiring dairies agree not to compete with the incumbent on these accounts, but they also submitted intentionally high, losing bids (often called “complementary bids”) as needed to ensure that the predetermined winner would actually win.

As a result of these confessions, the State of Ohio filed suit on behalf of 451 public school districts against 13 dairies, alleging a conspiracy that suppressed competition and raised milk prices to districts in the southwest, southeast and northeast regions of the state. Although the case settled before trial, it provides an excellent example of a market susceptible to vendor collusion. Specifically, the school milk market was especially vulnerable to bid-rigging because:

· Milk is homogeneous -- the product sold by one vendor is essentially identical to the product sold by another vendor. Conspirators can be sure that they can determine the winner simply by agreeing on who will bid how much;
· The group of dairies available to bid on these contracts was very stable. There were rarely, if ever, new dairies entering the market to disrupt the conspiracy; and
· Executives of the competing dairies socialized with each other frequently. While there is nothing inherently wrong with competitors being friendly, repeated social interactions provide opportunities to orchestrate bid-rigging schemes.

Be especially vigilant in watching for signs of vendor collusion when purchasing goods or services when these factors are present. Vigilance can lead to early detection and reporting of anticompetitive schemes, and may result in significant recoveries of overcharges for public entities targeted by unscrupulous vendors.