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Collusion mechanisms in procurement auctions: An experimental investigation

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  • Werner Güth

    ()

  • Jeannette Brosig
  • Torsten Weiland

    ()

Abstract

Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors’ costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders' profits.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-14.

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Length: 22 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:esi:discus:2006-14

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Related research

Keywords: competition; collusion; auction; bidding; public procurement;

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References

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  1. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, 09.
  2. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  3. Guth, Werner & Peleg, Bezalel, 1996. "On ring formation in auctions," Mathematical Social Sciences, Elsevier, vol. 32(1), pages 1-37, August.
  4. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  5. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
  6. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2000. "Bidding behavior in a repeated procurement auction: A summary," European Economic Review, Elsevier, vol. 44(4-6), pages 1006-1020, May.
  8. Kwasnica, Anthony M., 2000. "The choice of cooperative strategies in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 323-346, July.
  9. Susan I. Cohen & Martin Loeb, 1990. "Implicit Cost Allocation and Bidding for Contracts," Management Science, INFORMS, vol. 36(9), pages 1133-1138, September.
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Cited by:
  1. Lucie Ménager, 2013. "Communication in procurement: silence is not golden," Working Papers hal-00856078, HAL.

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