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Collusive market-sharing and corruption in procurement

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  • Ariane Lambert-Mogiliansky

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Konstantin Sonin

    (NES - New Economic School - NES, CEPR - Center for Economic Policy Research - CEPR, CEFIR - Center for Economic and Financial Research - CEFIR)

Abstract

This paper investigates links between corruption and collusion in procurement. A first-price multiple-object auction is administered by an agent who has legal discretion to allow for a readjustment of (all) submitted offers before the official opening. The agent may be corrupt, i.e. willing to "sell" his decision in exchange for a bribe. Our main result shows that the corrupt agent's incentives to extract rents are closely linked with that of a cartel of bidders. First, collusive bidding conveys value to the agent's decision power. Second, self-interested abuse of discretion to extract rents (corruption) provides a mechanism to enforce collusion. A second result is that package bidding can facilitate collusion. We also find that with corruption, collusion is more likely in auctions where firms are small relative to the market. Our main message to auction designers, competition authorities and criminal courts is that risks of collusion and of corruption must be addressed simultaneously. Some other policy implications for the design of tender procedures are discussed.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00590773.

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Date of creation: Aug 2005
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Handle: RePEc:hal:psewpa:halshs-00590773

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Keywords: auction ; corruption ; collusion;

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References

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  1. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, 09.
  2. Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
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Citations

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Cited by:
  1. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2009. "Fine-Tailored for the Cartel-Favoritism in Procurement," Review of Industrial Organization, Springer, vol. 35(1), pages 95-121, September.
  2. Tina Søreide, 2008. "Beaten by Bribery: Why Not Blow the Whistle?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 407-428, September.
  3. Eshien Chong & Carine Staropoli & Anne Yvrande-Billon, 2010. "Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00512813, HAL.
  4. Ariane Lambert Mogiliansky & Grigory Kosenok, 2006. "Public Markets Tailored for the Cartel- Favoritism in Procurement Auctions," Working Papers w0074, Center for Economic and Financial Research (CEFIR).
  5. Arnold, Ulli & Neubauer, Joerg & Schoenherr, Tobias, 2012. "Explicating factors for companies’ inclination towards corruption in Operations and supply chain management: An exploratory study in Germany," International Journal of Production Economics, Elsevier, vol. 138(1), pages 136-147.
  6. Leonardo Rezende, 2009. "Biased procurement auctions," Economic Theory, Springer, vol. 38(1), pages 169-185, January.
  7. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, vol. 17(2), pages 166-175, June.
  8. Eshien Chong & Carine Staropoli & Anne Yvrande-Billon, 2010. "Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence," Working Papers hal-00512813, HAL.
  9. Dietrich, Michael & McHardy, Jolian & Sharma, Abhijit, 2010. "Firm corruption in the presence of an auditor," MPRA Paper 24784, University Library of Munich, Germany.
  10. Balsevich, A. & Pivovarova, S. & Podkolzina, E., 2012. "The Role of Information Transparency in Public Procurement: the Example of Russian Regions," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 82-112.
  11. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2006. "Public markets tailored for the cartel - Favoritism in procurement auctions -," Working Papers halshs-00590288, HAL.
  12. Yasunori Okumura, 2011. "A dynamic analysis of collusive networks," Review of Economic Design, Springer, vol. 15(4), pages 317-336, December.
  13. Sonin Konstantin, 2004. "Private interest in public tenders: no revenue, no efficiency and no social benefits," EERC Working Paper Series 00-111e, EERC Research Network, Russia and CIS.

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