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Bid Rigging and the Threat of Government Prosecution

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  • Chantale LaCasse
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    Abstract

    In this article, I develop a simple bidding model in which collusion is endogenous. Buyers at a first-price sealed-bid auction decide whether to rig their bids given that they face the threat of government prosecution. A legal authority chooses whether to investigate the buyers on the basis of the bids tendered. In the unique sequential equilibrium of the game, buyers rig their bids with positive probability, but the legal authority can never ascertain, on the basis of the bids alone, that a conspiracy has formed.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 26 (1995)
    Issue (Month): 3 (Autumn)
    Pages: 398-417

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    Handle: RePEc:rje:randje:v:26:y:1995:i:autumn:p:398-417

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    Web page: http://www.rje.org

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    Web: https://editorialexpress.com/cgi-bin/rje_online.cgi

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    Cited by:
    1. Joseph E Harrington, 2001. "Optimal Cartel Pricing in the Presence of an Antitrust Authority," Economics Working Paper Archive 460, The Johns Hopkins University,Department of Economics, revised Jul 2002.
    2. Maarten Janssen & Eric Rasmusen, 2001. "Bertrand Competition Under Uncertainty," CIRJE F-Series CIRJE-F-117, CIRJE, Faculty of Economics, University of Tokyo.
    3. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
    4. Roldan, Flavia, 2011. "Covert networks and antitrust policy," IESE Research Papers D/932, IESE Business School.
    5. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
    6. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
    7. Joseph E Harrington Jr & Joe Chen, 2002. "Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection," Economics Working Paper Archive 514, The Johns Hopkins University,Department of Economics, revised Sep 2004.
    8. Ricardo Gonçalves, 2004. "Favouritism and cartel disruption in first-price auctions," Working Papers de Economia (Economics Working Papers) 15, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.

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