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Comparing the effectiveness of collusion devices in first-price procurement: an auction experiment

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  • Jeannette Brosig-Koch

    (University of Duisburg-Essen)

  • Werner Güth

    (Max Planck Institute for Research on Collective Goods)

  • Torsten Weiland

    (Max Planck Institute of Economics)

Abstract

Collusion in procurement auctions is illegal, but often observed. We compare experimentally three coordination mechanisms in how effectively they promote collusion in first-price procurement auctions. One mechanism aims at excluding competitive bids via bidding restrictions. The second one allows for promises on sharing the gains from collusion as in mutual shareholding. The third mechanism relies on unrestricted pre-play communication. Agreements made under the three mechanisms are non-binding. In the experiment, bidders interact with the same group of competitors only once as it is quite common in globalized (online) markets. We find that first-price procurement is quite collusion-proof regarding the first two mechanisms whereas pre-play communication, on average, increases profits. The communication protocols provide valuable insights about how to coordinate and implement non-binding collusion agreements in competitive one-shot interactions with private information.

Suggested Citation

  • Jeannette Brosig-Koch & Werner Güth & Torsten Weiland, 2016. "Comparing the effectiveness of collusion devices in first-price procurement: an auction experiment," Evolutionary and Institutional Economics Review, Springer, vol. 13(2), pages 269-295, December.
    • Handle: RePEc:spr:eaiere:v:13:y:2016:i:2:d:10.1007_s40844-016-0046-1
    DOI: 10.1007/s40844-016-0046-1
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    More about this item

    Keywords

    First-price procurement auction; Collusion; Communication; Experiment;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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