Bid rigging is the illegal practice of predetermining who will win a the contract to build a project. It's a form of collusion that allows contractors to extract higher prices than they might otherwise get in a truly competitive bidding environment.
If you've ever seen The Sopranos, bid rigging comes up a lot. In that case, it works like this: supposedly rival companies get together and decide who will submit the winning bid for a contract. Instead of competing to see who can present the lowest possible price, companies predetermine a price they are looking to make. One company (say, Tony Soprano's Barone Sanitation) then submits the predetermined winning bid amount. The other companies (like Johnny Sack's Cinelli Sanitation) submit higher bids, ensuring that the "low" bid wins the contract.
The companies might take turns securing contracts that way, assuring that prices stay high (basically acting as a monopolistic cabal). Or the other companies in the scheme might receive a payoff from the company winning the bid.
Related or Semi-related Video
Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
Up Next
Spread to treasuries is an indication of risk associated with a given debt or bond offering.
Painting the tape is an illegal way to manipulate stock prices. And yes, it’s still illegal, even if you paint it super pretty.
What is Backdating? Backdating just means that someone put a date on something that is before the actual date of the document. This is a pretty com...
What is a Bear Raid? A bear raid refers to the processes used to try to lower a stock price. It usually involves spreading rumors about the company...