Bid Rigging. An Analysis of Corruption in Auctions

Yvan Lengwiler and Elmar Wolfstetter

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: In many auctions, the auctioneer is an agent of the seller. This invites corruption. We propose a model of corruption in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. We characterize equilibrium bidding in first- and second-price auctions, show how corruption distorts the allocation, and why both the auctioneer and bidders may have a vested interest in maintaining corruption. Bid rigging is initiated by the auctioneer after bids have been submitted in order to minimize illegal contact and to realize the maximum gain from corruption.

Keywords: auctions; procurement; corruption; right of first refusal; numerical (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-com, nep-fmk and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Bid Rigging – An Analysis of Corruption in Auctions (2005)
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