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Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer

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Author Info

  • Lengwiler, Yvan
  • Wolfstetter, Elmar

Abstract

In many auctions, the auctioneer is an agent of the seller. This invites corruption. We analyze a model in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid, whichever is more profitable. The interplay between these two types of corruption gives rise to a complex bidding problem that we tackle with numerical methods. Our results indicate that corruption does not only redistribute surplus away from the seller, but also distorts efficiency. We furthermore explain why both, the auctioneer and bidders, have a vested interest in maintaining corruption.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 10 (October)
Pages: 1872-1892

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:10:p:1872-1892

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Auctions Corruption Procurement Bid rigging;

References

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  1. Roberto Burguet & Martin Perry, 2002. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Departmental Working Papers 200205, Rutgers University, Department of Economics.
  2. Benny Moldovanu & Manfred Tietzel, 1998. "Goethe's Second-Price Auction," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 854-859, August.
  3. Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
  4. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics.
  5. Masaki Aoyagi, 2002. "Efficient Collusion in Repeated Auctions with Communication," ISER Discussion Paper 0566, Institute of Social and Economic Research, Osaka University.
  6. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
  7. Grosskopf, Brit & Roth, Alvin E., 2009. "If You are Offered the Right of First Refusal, Should You Accept? An Investigation of Contract Design," Scholarly Articles 4261988, Harvard University Department of Economics.
  8. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  9. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-99, June.
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Koc, Sevket Alper & Neilson, William S., 2008. "Interim bribery in auctions," Economics Letters, Elsevier, vol. 99(2), pages 238-241, May.
  11. Riley, John G, 1989. "Expected Revenue from Open and Sealed Bid Auctions," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 41-50, Summer.
  12. Marco Celentani & Juan J. Ganuza, 2000. "Corruption and competition in procurement," Economics Working Papers 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.
  13. Menezes, Flavio M. & Monteiro, Paulo Klinger, 2006. "Corruption and auctions," Journal of Mathematical Economics, Elsevier, vol. 42(1), pages 97-108, February.
  14. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
  15. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  16. Federico Weinschelbaum & Leandro Arozamena, 2004. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Econometric Society 2004 Latin American Meetings 180, Econometric Society.
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Cited by:
  1. Federico Weinschelbaum & Leandro Arozamena, 2005. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Working Papers 82, Universidad de San Andres, Departamento de Economia, revised Aug 2005.
  2. Vitali Gretschko & Achim Wambach, 2012. "Auctions vs. Negotiations: The Case of Favoritism," CESifo Working Paper Series 4045, CESifo Group Munich.

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