Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions
AbstractWe consider a model of bribery in an asymmetric procurement auction. In return for a bribe from the dishonest supplier, the auctioneer has the discretion to allow this supplier to revise his bid downward to match the low bid of the honest supplier. The dishonest supplier can also win the contract outright without paying a bribe by bidding below the honest supplier. We investigate the effect of the bribe share and the cost distributions on the bidding functions, the allocative distortion, and the expected price paid by the buyer. The dishonest supplier bids more aggressively to win the contract outright when the auctioneer takes a larger bribe share. Bribery and the implied right of first refusal introduce a new allocative distortion in favor of the dishonest supplier. Finally, we use the power family of cost distributions to examine the expected price paid by the buyer. When the dishonest supplier has a more favorable cost distribution, there exist bribe shares sufficiently large such that the expected price paid by the buyer can actually decline as a result of bribery.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 7 (2007)
Issue (Month): 1 (June)
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Web page: http://www.degruyter.com
Other versions of this item:
- Roberto Burguet & Martin Perry, 2002. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Departmental Working Papers 200205, Rutgers University, Department of Economics.
- Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keith Waehrer & Martin Perry, 2002.
"The Effects of Mergers in Open Auction Markets,"
Departmental Working Papers
200203, Rutgers University, Department of Economics.
- Waehrer, Keith, 1999. "Asymmetric private values auctions with application to joint bidding and mergers," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 437-452, April.
- McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
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