Investigation of Bid Collusion within the Swedish Generic Drugs Market

Abstract

The aim of the thesis is to investigate whether there is bid collusion within the Swedish generic drugs market. Two types of collusion are considered: bid rotation and parallel bidding. Bid rotation means that companies take turns in winning the auction. Parallel bidding, on the other hand, means that two (or more) companies charge the same price every month and hence win together, sharing the market. The data used has been obtained from Tandvårds- och Läkemedelsförmånsverket (TLV) and contains monthly bids on over 1900 drugs for the years 2010-2015. The thesis presents a new method of identifying bid collusion, based on the investigation of the series of winners over time. The strategy is to test if a sequence of winners is random. The test identifies 231 products with suspicious bidding patterns (bid rotation or parallel bidding), which constitutes around 25% of all products for which there is data for at least 30 months. The average price of products marked as suspicious is on average 5 times higher than a comparable product with many bidders. The isolated impact of collusion according to the difference-in-difference methodology is 47% price increase and the estimated cost to the society is 148 million SEK at the minimum.