The Effect of Corruption on Bidding Behavior in First-Price Auctions
Most of the literature on auctions assumes that the auctioneer owns the object on sale. However most auctions are organized and run by an agent of the owner. This separation generates the possibility of corruption. We analyze the effect of a particular form of corruption on bidding behavior in a single-object, private-value auction with risk-neutral bidders. Bidders believe that, with a certain probability, the auctioneer has reached an agreement with one of the bidders by which, after receiving all bids, (i) she will reveal to that bidder all of her rivals' bids, and (ii) she will allow that bidder to change her original bid upwards or downwards. We study how an honest bidder would adjust her bidding behavior when facing this type of collusion between a dishonest rival and the auctioneer. In a first price auction, an honest bidder can become more or less aggressive than she would be without corruption, or her behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We also examine the extent to which the most commonly used distributions satisfy each of the three conditions
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
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.:
- Jones, C. & Menezes, F., 1995. "Auctions and Corruption: How to Compensate the Auctioneer," Papers 291, Australian National University - Department of Economics.
- McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
- Kenneth Hendricks & Robert H. Porter, 1989.
"Collusion in Auctions,"
Annals of Economics and Statistics,
GENES, issue 15-16, pages 217-230.
- Menezes, Flavio M. & Monteiro, Paulo Klinger, 2006.
"Corruption and auctions,"
Journal of Mathematical Economics,
Elsevier, vol. 42(1), pages 97-108, February.
- Roberto Burguet & Martin K. Perry, 2003. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
- Ingraham Allan T, 2005. "A Test for Collusion between a Bidder and an Auctioneer in Sealed-Bid Auctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-34, September.
- Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
- Roberto Burguet & Yeon-Koo Che, 2004. "Competitive Procurement with Corruption," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 50-68, Spring.
- Mark Bagnoli & Ted Bergstrom, 2005.
"Log-concave probability and its applications,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, 08.
- Federico Weinschelbaum & Leandro Arozamena, 2006.
"A Note on the Suboptimality of Right-of-First-Refusal Clauses,"
92, Universidad de San Andres, Departamento de Economia, revised Jul 2006.
- Leandro Arozamena & Federico Weinschelbaum, 2006. "A note on the suboptimality of right-of-first-refusal clauses," Economics Bulletin, AccessEcon, vol. 4(24), pages 1-5.
- Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
- Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
- Lengwiler, Yvan & Wolfstetter, Elmar, 2000.
"Auctions and corruption,"
SFB 373 Discussion Papers
2000,40, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- O. Compte & A. Lambert-Mogiliansky & T. Verdier, 2005. "Corruption and Competition in Procurement Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 1-15, Spring.
- Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
- Bernard Elyakime & Jean-Jacques Laffont & Patrice Loisel & Quang Vuong, 1994.
"First-Price Sealed-Bid Auctions with Secret Reservation Prices,"
Annals of Economics and Statistics,
GENES, issue 34, pages 71-114.
- Elyakime, Bernard & Laffont, Jean-Jacques & Loisel, Patrice & Vuong, Quang, 1993. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," IDEI Working Papers 27, Institut d'Économie Industrielle (IDEI), Toulouse.
- Roberto Burguet & Martin Perry, 2002.
"Bribery and Favoritism by Auctioneers in Sealed Bid Auctions,"
Departmental Working Papers
200205, Rutgers University, Department of Economics.
- Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
- Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
- Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
- Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
- repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
- Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
- Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
- Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
When requesting a correction, please mention this item's handle: RePEc:ecm:latm04:180. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.