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Comparing Competition and Collusion in Procurement Auctions: A Numerical Approach

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  • Patrick Bajari
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    Abstract

    January 2000, Revised January 2001 Collusion is a serious problem in many procurement auctions. In this research, I study a model of first price sealed bid procurement auctions with asymmetric bidders. I demonstrate that the equilibrium to the model is unique and describe three algorithms that can be used to compute the inverse equilibrium bid functions. I then use the computational algorithms to compare competitive and collusive bidding. The algorithms are useful for structural estimation of auction models and for assessing the damages from bid-rigging.

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    Paper provided by Stanford University, Department of Economics in its series Working Papers with number 00003.

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    Handle: RePEc:wop:stanec:00003

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    1. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
    2. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
    3. Estelle Cantillon, 2000. "The Effect of Bidders' Asymmetries on Expected Revenue in Auctions," Cowles Foundation Discussion Papers 1279, Cowles Foundation for Research in Economics, Yale University.
    4. Laffont & Ossard & Vuong, 1995. "Econometrics of first-price auctions," Working Papers 153731, Institut National de la Recherche Agronomique, France.
    5. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    6. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    7. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
    8. Lebrun, Bernard, 1996. "Existence of an Equilibrium in First Price Auctions," Economic Theory, Springer, vol. 7(3), pages 421-43, April.
    9. Alessandro Lizzeri & Nicola Persico, 1995. "Existence and Uniqueness of Equilibrium In First Place Auctions and War of Attrition with Affiliated Values," Discussion Papers 1120, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Bernard Lebrun, 1996. "Existence of an equilibrium in first price auctions (*)," Economic Theory, Springer, vol. 7(3), pages 421-443.
    11. Armantier, O. & Florens, J.-P. & Richard, J.-F., 1998. "Empirical Game Theoretic Models: Constrained Equilibrium & Simulation," Papers 98.498, Toulouse - GREMAQ.
    12. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
    13. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, vol. 7(2), pages 193-220, September.
    14. Pesendorfer, Martin, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 381-411, July.
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