Question

Detection of rigged school milk prices (cont’d). Refer to the investigation of collusive bidding in the northern Kentucky school milk market, presented in Exercise. Market allocation is a common form of collusive behavior in bid-rigging conspiracies. Under collusion, the same dairy usually controls the same school districts year after year. The incumbency rate for a market is defined as the proportion of school districts that are won by the vendor that won the previous year. Past experience with milk bids in a competitive environment reveals that a typical incumbency rate is .7. That is, 70% of the school districts are expected to purchase their milk from the dairy that won the previous year. Incumbency rates of .9 or higher are strong indicators of collusive bidding. Over the years, when bid collusion was alleged to have occurred in northern Kentucky, there were 51 potential vendor transitions (i.e., changes in milk supplier from one year to the next in a district) in the tricounty market and 134 potential vendor transitions in the surrounding market. These values represent the sample sizes (n1 = 134 and n2 = 51) for calculating incumbency rates. Examining the data saved in the MILK file, you’ll find that in 50 of the 51 potential vendor transitions for the tricounty market, the winning dairy from the previous year won the bid the next year; similarly, you’ll find that in 91 of the 134 potential vendor transitions for the surrounding area, the same dairy won the bid the next year.
a. Estimate the incumbency rates for the tricounty and surrounding milk markets.
b. A MINITAB printout comparing the two incumbency rates is shown below. Give a practical interpretation of the results. Do they show further support for the bid collusion theory?


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  • CreatedMay 20, 2015
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