An economic framework for understanding collusive market behavior is presented in this paper. It was prepared to provide key background information to the virginia department of transnportation in support of creating an antitrust monitoring and detection unit within the construction division. Although the scope of this paper is confined to economic background and general proposals for hindering collusive behavior in construction markets, an overview of antitrust case law is presented in a paper in this record by allen and culkin, "legal aspects of competitive construction market behavior." The purposeof this paper is to provide a primer on the nature of collusive markets; thus, this paper is directed toward highway construction program managers, rather than professional economists. In addition, the economic and legal reviews serve as necessary background for undertaking an empirical study of highway construction markets in virginia. The first section of this paper defines market failure, discusses the origin of collusion, and reviews 10 key market characteristics that affect the likelihood of collusion. The second section surveys various methods that have been proposed for deterring collusive practices in highway construction. This paper appears in transportation research record no. 1229, Economics, finance, planning, and administration.
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