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Deciding Between Competition and Collusion

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Author Info
Patrick Bajari (Duke University and NBER)
Lixin Ye (Ohio State University)

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Abstract

We develop an approach to identify and test for bid rigging in procurement auctions. First, we introduce a general auction model with asymmetric bidders. Second, we study the problem of identification in our model. We state a set of conditions that are both necessary and sufficient for a distribution of bids to be generated by a model with competitive bidding. Third, we discuss how to elicit a prior distribution over a firm's structural cost parameters from industry experts. Given this prior distribution, we use Bayes's theorem to compare competitive and collusive models of industry equilibrium. Finally, we apply our methodology to a data set of bidding by construction firms in the Midwest. The techniques we propose are not computationally demanding, use flexible functional forms, and can be programmed using most standard statistical packages. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/003465303772815871
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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 85 (2003)
Issue (Month): 4 (November)
Pages: 971-989
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Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:971-989

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  1. De Silva, Dakshina & Pagel, Beatrice & Peeters, Ronald, 2008. "Sequential versus Simultaneous Auctioning of Procurement Contracts with Common Value and Private Value Components," Research Memoranda 005, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  2. Hiroshi Ohashi, 2008. "Effects of Transparency in Procurement Practices on Government Expenditure: A Case Study of Municipal Public Works," CIRJE F-Series CIRJE-F-548, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
    Other versions:
  3. Elena Krasnokutskaya, 2004. "Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity," PIER Working Paper Archive 05-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  4. Patrick Bajari & Garrett Summers, . "Detecting Collusion in Procurement Auctions: A Selective Survey of Recent Research," Working Papers 01014, Stanford University, Department of Economics. [Downloadable!]
  5. Susan Athey & Philip A. Haile, 2006. "Empirical Models of Auctions," Levine's Bibliography 122247000000001045, UCLA Department of Economics. [Downloadable!]
    Other versions:
  6. Tostao, Emilio & Chung, Chanjin & Brorsen, B. Wade, 2006. "Integrating the Structural Auction Approach and Traditional Measures of Market Power," 2006 Annual meeting, July 23-26, Long Beach, CA 21244, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  8. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2007. "What Model for Entry in First-Price Auctions? A Nonparametric Approach," Micro Theory Working Papers marmer-07-11-22-02-26-44, Microeconomics.ca Website, revised 22 Nov 2007. [Downloadable!]
  9. De Silva, Dakshina & Kosmopoulou, Georgia & Lamarche, Carlos, 2007. "The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions," MPRA Paper 5236, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  10. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Iwan Bos & Maarten Pieter Schinkel, 2009. "Tracing the Base: A Topographic Test for Collusive Basing-Point Pricing," Tinbergen Institute Discussion Papers 09-007/1, Tinbergen Institute. [Downloadable!]
  12. Rieko Ishii, 2007. "Collusion in Repeated Procurement Auction: a Study of Paving Market in Japan," Discussion Papers in Economics and Business 07-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
  13. Dakshina G. De Silva & Anuruddha Kankanamge & Georgia Kosmopoulou, 2005. "The Impact Of Change In Auction Format On Bidding Behavior," Microeconomics 0512009, EconWPA. [Downloadable!]
  14. Rieko Ishii, 2008. "Collusion in Repeated Procurement Auction: A Study of a Paving Market in Japan," ISER Discussion Paper 0710, Institute of Social and Economic Research, Osaka University. [Downloadable!]
  15. Saphores, Jean-Daniel & Vincent, Jeffrey R. & Marochko, Valy & Abrudan, Ioan & Bouriaud, Laura & Zinnes, Clifford, 2006. "Detecting collusion in timber auctions : an application to Romania," Policy Research Working Paper Series 4105, The World Bank. [Downloadable!]
  16. Dakshina De Silva & Timothy Dunne & Anuruddha Kankanamge & Georgia Kosmopoulou, 2005. "The Impact of Public Information on Bidding in Highway Procurement Auctions," Microeconomics 0511011, EconWPA. [Downloadable!]
    Other versions:
  17. Hongbin Cai & J. Vernon Henderson & Qinghua Zhang, 2009. "China's Land Market Auctions: Evidence of Corruption," NBER Working Papers 15067, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Susan Athey, 2005. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Theory workshop papers 658612000000000098, UCLA Department of Economics. [Downloadable!]
  19. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics. [Downloadable!]
  20. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2004. "Bidding for Incompete Contracts," Working Papers 2004.141, Fondazione Eni Enrico Mattei. [Downloadable!]
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