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Is Collusion-Proof Procurement Expensive?

Author

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  • Gaurab Aryal
  • Maria F. Gabrielli

Abstract

Collusion among bidders adversely affects procurement cost and in some cases efficiency, and it seems collusion is more prevalent that we would like. Statistical methods of detecting collusion just using bid data, in a hope to deter future collusion, is perilous, and access to additional data is rare and often always after the fact. In this paper, we estimate the extra cost of implementing a new procurement rule proposed by Chen and Micali [2012] that is robust to collusion and always guarantees the efficient outcome. The rule requires bidders to report their coalition and to ensure incentive-compatibility, the mechanism allows them to attain rents. We estimate this rent using data from California highway construction and find it to be anywhere between 1.6% to 5%. Even after we factor in the marginal excess burden of taxes needed to finance these rents, the cost ranges between 2.08% and 6.5%, suggesting that there is a room to think about running this new auction, suggesting we should consider this auction.

Suggested Citation

  • Gaurab Aryal & Maria F. Gabrielli, 2015. "Is Collusion-Proof Procurement Expensive?," Papers 1508.05353, arXiv.org, revised Nov 2020.
    • Handle: RePEc:arx:papers:1508.05353
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    References listed on IDEAS

    as
    1. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    2. 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 441-460, June.
    3. Elodie Guerre & I. Perrigne & Q.H. Vuong, 2000. "Optimal nonparametric estimation of first-price auctions [[Estimation nonparamétrique optimale des enchères au premier prix]]," Post-Print hal-02697497, HAL.
    4. 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.
    5. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 207-257.
    6. Gaurab Aryal & Maria F. Gabrielli & Quang Vuong, 2021. "Semiparametric Estimation of First-Price Auction Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 39(2), pages 373-385, March.
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    More about this item

    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
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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