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Collusion mechanisms in procurement auctions: An experimental investigation

Author

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  • Werner Güth

    ()

  • Jeannette Brosig
  • Torsten Weiland

    ()

Abstract

Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors’ costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders' profits.

Suggested Citation

  • Werner Güth & Jeannette Brosig & Torsten Weiland, 2006. "Collusion mechanisms in procurement auctions: An experimental investigation," Papers on Strategic Interaction 2006-14, Max Planck Institute of Economics, Strategic Interaction Group.
  • Handle: RePEc:esi:discus:2006-14
    as

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    File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2006-14.pdf
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    References listed on IDEAS

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    1. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-599, June.
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    2. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
    3. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
    4. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, September.
    5. Fehl, Ulrich & Guth, Werner, 1987. "Internal and external stability of bidder cartels in auctions and public tenders: A comparison of pricing rules," International Journal of Industrial Organization, Elsevier, vol. 5(3), pages 303-313.
    6. Guth, Werner & Peleg, Bezalel, 1996. "On ring formation in auctions," Mathematical Social Sciences, Elsevier, vol. 32(1), pages 1-37, August.
    7. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071, August.
    8. Kwasnica, Anthony M., 2000. "The choice of cooperative strategies in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 323-346, July.
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    Cited by:

    1. Lucie Ménager, 2015. "Pre-play communication in procurement auctions: silence is not golden," Working Papers hal-00856078, HAL.

    More about this item

    Keywords

    competition; collusion; auction; bidding; public procurement;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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