Collusive Market Sharing and Corruption in Procurement

Ariane Lambert-Mogiliansky () and Konstantin Sonin ()

Journal of Economics & Management Strategy, 2006, vol. 15, issue 4, pages 883-908

Abstract: "This paper investigates links between corruption and collusion in procurement. A first-price multiple-object auction is administered by an agent who has legal discretion to allow for a readjustment of (all) submitted offers before the official opening. The agent may be corrupt, that is, willing to "sell" his decision in exchange for a bribe. Our main result shows that the corrupt agent's incentives to extract rents are closely linked with that of a cartel of bidders. First, collusive bidding conveys value to the agent's decision power. Second, self-interested abuse of discretion to extract rents (corruption) provides a mechanism to enforce collusion. A second result is that package bidding can facilitate collusion. We also find that with corruption, collusion is more likely in auctions where firms are small relative to the market. Our main message to auction designers, competition authorities and criminal courts is that risks of collusion and of corruption must be addressed simultaneously. Some other policy implications for the design of tender procedures are discussed." Copyright 2006, The Author(s) Journal Compilation (c) 2006 Blackwell Publishing.

Date: 2006
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Working Paper: Collusive market-sharing and corruption in procurement (2005)
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