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Testing for collusion in asymmetric first-price auctions

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  • Aryal, Gaurab
  • Gabrielli, Maria F.

Abstract

This paper proposes a two step procedure to detect collusion in asymmetric first-price procurement (auctions). First, we use a reduced form test to short-list bidders whose bidding behavior is at-odds with competitive bidding. Second, we estimate the (latent) cost for these bidders under both competition and collusion setups. Since for the same bid the recovered cost must be smaller under collusion—as collusion increases the mark-up—than under competition, detecting collusion boils down to testing for first-order stochastic dominance, for which we use the classic Kolmogorov–Smirnov and Wilcoxon–Mann–Whitney tests. Our bootstrap based Monte Carlo experiments for asymmetric bidders confirm that the procedure has good power to detect collusion when there is collusion. We implement the tests for highway procurement data in California and conclude that there is no evidence of collusion even though the reduced form test supports collusion. This highlights potential pitfalls of inferring collusion based only on reduced form tests.

Suggested Citation

  • Aryal, Gaurab & Gabrielli, Maria F., 2013. "Testing for collusion in asymmetric first-price auctions," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 26-35.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:1:p:26-35
    DOI: 10.1016/j.ijindorg.2012.10.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Imhof, David, 2017. "Econometric tests to detect bid-rigging cartels: does it work?," FSES Working Papers 483, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    2. Bedri Kamil Onur Tas, 2017. "Collusion Detection in Public Procurement with Limited Information," Working Papers 1127, Economic Research Forum, revised 08 Oct 2017.
    3. Imhof, David, 2017. "Simple Statistical Screens to Detect Bid Rigging," FSES Working Papers 484, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    4. Riccardo Camboni Marchi Adani & Paola Valbonesi, 2016. "Favouritism in scoring rule auctions," "Marco Fanno" Working Papers 0210, Dipartimento di Scienze Economiche "Marco Fanno".
    5. Huber, Martin & Imhof, David, 2018. "Machine Learning with Screens for Detecting Bid-Rigging Cartels," FSES Working Papers 494, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    6. Imhof, David & Karagök, Yavuz & Rutz, Samuel, 2016. "Screening for bid-rigging - does it work?," FSES Working Papers 468, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    7. Florencia Gabrielli, 2014. "Econometrics of First Price Auctions: a Survey of the Theoretical and Applied Literature," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 60, pages 77-118, January-D.
    8. Kaplan, Uma & Marmer, Vadim & Shneyerov, Artyom, 2016. "Identifying Collusion in English Auctions," Microeconomics.ca working papers vadim_marmer-2016-3, Vancouver School of Economics, revised 08 Jul 2017.
    9. David Imhof & YAVUZ KARAGÖK & SAMUEL RUTZ, 2017. "Screening for Bid-rigging – Does it Work?," Working Papers 2017-09, CRESE.
    10. Nianqing Liu & Yao Luo, 2014. "A Nonparametric Test of Exogenous Participation in First-Price Auctions," Working Papers tecipa-519, University of Toronto, Department of Economics.
    11. Florencia M. Gabrielli, 2013. "Detecting Collusion on Highway Procurement," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 59, pages 127-165, January-D.
    12. Aryal, Gaurab & Gabrielli, Maria F., 2012. "Is Collusion Proof Auction Expensive? Estimates from Highway Procurements," MPRA Paper 57353, University Library of Munich, Germany, revised 19 Feb 2014.
    13. Gaurab Aryal & Maria F. Gabrielli, 2015. "Is Collusion-Proof Procurement Expensive?," Papers 1508.05353, arXiv.org, revised Sep 2015.

    More about this item

    Keywords

    Asymmetric auctions; Collusion; Nonparametric testing;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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