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Collusion mechanisms in procurement auctions: An experimental investigation

Werner Güth (), Jeannette Brosig-Koch and Torsten Weiland

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors’ costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders' profits.

Keywords: competition; collusion; auction; bidding; public procurement (search for similar items in EconPapers)
JEL-codes: C72 H57 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-exp, nep-fmk, nep-gth, nep-law and nep-pbe
Date: 2006-09
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