Testing for Collusion in Asymmetric First-Price Auctions
This paper proposes fully nonparametric tests to detect possible collusion in first-price procurement (auctions). The aim of the tests is to detect possible collusion before knowing whether or not bidders are colluding. Thus we do not rely on data on anti-competitive hearing, and in that sense is ’ex-ante’. We propose a two steps (model selection) procedure: First, we use a reduced form test of independence and symmetry to shortlist bidders whose bidding behavior is at-odds with competitive bidding, and Second, the recovered (latent) cost for these bidders must be higher under collusion than under competition, because collusion dwarfs competition, hence detecting collusion boils down to testing if the estimated cost distribution under collusion first order stochastically dominates that under competition. We propose rank based and Kolmogorov-Smirnov (K-S) tests. 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.
|Date of creation:||Nov 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Canberra, ACT 2601|
Phone: +61 2 6125 3807
Fax: +61 2 6125 0744
Web page: http://rse.anu.edu.au/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Che‐Lin Su & Kenneth L. Judd, 2012.
"Constrained Optimization Approaches to Estimation of Structural Models,"
Econometric Society, vol. 80(5), pages 2213-2230, 09.
- Che-Lin Su & Kenneth L. Judd, 2008. "Constrainted Optimization Approaches to Estimation of Structural Models," Discussion Papers 1460, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Patrick Bajari & Lixin Ye, 2003.
"Deciding Between Competition and Collusion,"
The Review of Economics and Statistics,
MIT Press, vol. 85(4), pages 971-989, November.
- Martin Pesendorfer, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 381-411.
- Bernard Lebrun, 1996.
"Existence of an equilibrium in first price auctions (*),"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(3), pages 421-443.
- Lebrun, Bernard, 1996. "Existence of an Equilibrium in First Price Auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(3), pages 421-43, April.
- Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
- Eric Maskin & John Riley, 2003.
"Uniqueness of Equilibrium in Sealed High-Bid Auctions,"
Economics Working Papers
0031, Institute for Advanced Study, School of Social Science.
- Maskin, Eric & Riley, John, 2003. "Uniqueness of equilibrium in sealed high-bid auctions," Games and Economic Behavior, Elsevier, vol. 45(2), pages 395-409, November.
- Mireia Jofre-Bonet & Martin Pesendorfer, 2001.
"Estimation of a Dynamic Auction Game,"
NBER Working Papers
8626, National Bureau of Economic Research, Inc.
- William S. Comanor & Mark A. Schankerman, 1976. "Identical Bids and Cartel Behavior," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 281-286, Spring.
- Reiczigel, Jeno & Zakarias, Ildiko & Rozsa, Lajos, 2005. "A Bootstrap Test of Stochastic Equality of Two Populations," The American Statistician, American Statistical Association, vol. 59, pages 156-161, May.
- Wayne-Roy Gayle & Jean Richard, 2008. "Numerical Solutions of Asymmetric, First-Price, Independent Private Values Auctions," Computational Economics, Society for Computational Economics, vol. 32(3), pages 245-278, October.
- Hubbard, Timothy P. & Paarsch, Harry J., 2009. "Investigating bid preferences at low-price, sealed-bid auctions with endogenous participation," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 1-14, January.
- Elena Krasnokutskaya, 2011. "Identification and Estimation of Auction Models with Unobserved Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 293-327.
- Abadie A., 2002. "Bootstrap Tests for Distributional Treatment Effects in Instrumental Variable Models," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 284-292, March.
- Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
- Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-60, June.
- Robert H. Porter & J. Douglas Zona, 1999.
"Ohio School Milk Markets: An Analysis of Bidding,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(2), pages 263-288, Summer.
- Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
- 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.
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
- Fibich, Gadi & Gavish, Nir, 2011. "Numerical simulations of asymmetric first-price auctions," Games and Economic Behavior, Elsevier, vol. 73(2), pages 479-495.
- Tong Li & Isabelle Perrigne, 2003. "Timber Sale Auctions with Random Reserve Prices," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 189-200, February.
- Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 439-454.
- Véronique Flambard & Isabelle Perrigne, 2006. "Asymmetry in Procurement Auctions: Evidence from Snow Removal Contracts," Economic Journal, Royal Economic Society, vol. 116(514), pages 1014-1036, October.
- 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.
When requesting a correction, please mention this item's handle: RePEc:acb:cbeeco:2011-564. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.