The Effect of Corruption on Bidding Behavior in First-Price Auctions

Federico Weinschelbaum and Leandro Arozamena

No 180, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: Most of the literature on auctions assumes that the auctioneer owns the object on sale. However most auctions are organized and run by an agent of the owner. This separation generates the possibility of corruption. We analyze the effect of a particular form of corruption on bidding behavior in a single-object, private-value auction with risk-neutral bidders. Bidders believe that, with a certain probability, the auctioneer has reached an agreement with one of the bidders by which, after receiving all bids, (i) she will reveal to that bidder all of her rivals' bids, and (ii) she will allow that bidder to change her original bid upwards or downwards. We study how an honest bidder would adjust her bidding behavior when facing this type of collusion between a dishonest rival and the auctioneer. In a first price auction, an honest bidder can become more or less aggressive than she would be without corruption, or her behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We also examine the extent to which the most commonly used distributions satisfy each of the three conditions

Keywords: auctions; corruption (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: The effect of corruption on bidding behavior in first-price auctions (2009)
Working Paper: The Effect of Corruption on Bidding Behavior in First-Price Auctions (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:180

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