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Comparing competition and collusion: a numerical approach

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  • Patrick Bajari

    () (Department of Economics, Stanford University, Stanford, CA 94305-6072, USA)

Abstract

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.

Suggested Citation

  • Patrick Bajari, 2001. "Comparing competition and collusion: a numerical approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(1), pages 187-205.
  • Handle: RePEc:spr:joecth:v:18:y:2001:i:1:p:187-205
    Note: Received: January 14, 2000; revised version: February 28, 2001
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    Keywords

    Asymmetric auction; Collusion.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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