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Collusive market-sharing and corruption in procurement

Author

Listed:
  • Ariane Lambert-Mogiliansky

    (PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Konstantin Sonin

    (NES - New Economic School - NES, CEPR - Center for Economic Policy Research - CEPR, CEFIR - Center for Economic and Financial Research - CEFIR)

Abstract

This paper investigates links between corruption and collusion in procurement. A first-price multiple-object auction is administered by an agent who has legal discretion to allow for a readjustment of (all) submitted offers before the official opening. The agent may be corrupt, i.e. willing to "sell" his decision in exchange for a bribe. Our main result shows that the corrupt agent's incentives to extract rents are closely linked with that of a cartel of bidders. First, collusive bidding conveys value to the agent's decision power. Second, self-interested abuse of discretion to extract rents (corruption) provides a mechanism to enforce collusion. A second result is that package bidding can facilitate collusion. We also find that with corruption, collusion is more likely in auctions where firms are small relative to the market. Our main message to auction designers, competition authorities and criminal courts is that risks of collusion and of corruption must be addressed simultaneously. Some other policy implications for the design of tender procedures are discussed.

Suggested Citation

  • Ariane Lambert-Mogiliansky & Konstantin Sonin, 2005. "Collusive market-sharing and corruption in procurement," PSE Working Papers halshs-00590773, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00590773
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00590773
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    References listed on IDEAS

    as
    1. Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
    2. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, September.
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    Cited by:

    1. Leonardo Rezende, 2009. "Biased procurement auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 169-185, January.
    2. Tetsuro Mizoguchi & Nguyen Van Quyen, 2014. "Corruption in Public Procurement Market," Pacific Economic Review, Wiley Blackwell, vol. 19(5), pages 577-591, December.
    3. repec:hal:wpaper:hal-00512813 is not listed on IDEAS
    4. repec:hal:journl:hal-00512813 is not listed on IDEAS
    5. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2009. "Fine-Tailored for the Cartel-Favoritism in Procurement," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 95-121, September.
    6. Eshien Chong & Carine Staropoli & Anne Yvrande-Billon, 2014. "Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00512813, HAL.
    7. Yasunori Okumura, 2011. "A dynamic analysis of collusive networks," Review of Economic Design, Springer;Society for Economic Design, vol. 15(4), pages 317-336, December.
    8. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, vol. 17(2), pages 166-175, June.
    9. Gustavo Piga, 2011. "A Fighting Chance Against Corruption in Public Procurement?," Chapters,in: International Handbook on the Economics of Corruption, Volume Two, chapter 5 Edward Elgar Publishing.
    10. Anna Balsevich & Elena Podkolzina, 2014. "Indicators Of Corruption In Public Procurement: The Example Of Russian Regions," HSE Working papers WP BRP 76/EC/2014, National Research University Higher School of Economics.
    11. Sonin Konstantin, 2004. "Private interest in public tenders: no revenue, no efficiency and no social benefits," EERC Working Paper Series 00-111e, EERC Research Network, Russia and CIS.
    12. Ariane Lambert-Mogiliansky, 2011. "Corruption and Collusion: Strategic Complements in Procurement," Chapters,in: International Handbook on the Economics of Corruption, Volume Two, chapter 4 Edward Elgar Publishing.
    13. Dietrich, Michael & McHardy, Jolian & Sharma, Abhijit, 2010. "Firm corruption in the presence of an auditor," MPRA Paper 24784, University Library of Munich, Germany.
    14. Tina Søreide, 2008. "Beaten by Bribery: Why Not Blow the Whistle?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 407-428, September.
    15. Arnold, Ulli & Neubauer, Joerg & Schoenherr, Tobias, 2012. "Explicating factors for companies’ inclination towards corruption in Operations and supply chain management: An exploratory study in Germany," International Journal of Production Economics, Elsevier, vol. 138(1), pages 136-147.
    16. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2006. "Public markets tailored for the cartel - Favoritism in procurement auctions -," Working Papers halshs-00590288, HAL.
    17. repec:eee:ecosys:v:41:y:2017:i:1:p:52-67 is not listed on IDEAS
    18. Balsevich, A. & Pivovarova, S. & Podkolzina, E., 2012. "The Role of Information Transparency in Public Procurement: the Example of Russian Regions," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 82-112.
    19. repec:clh:resear:v:2:y:2009:i:5 is not listed on IDEAS
    20. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2006. "Public markets tailored for the cartel - Favoritism in procurement auctions -," PSE Working Papers halshs-00590288, HAL.
    21. Avdasheva, Svetlana & Kryuchkova, Polina, 2015. "The ‘reactive’ model of antitrust enforcement: When private interests dictate enforcement actions – The Russian case," International Review of Law and Economics, Elsevier, vol. 43(C), pages 200-208.
    22. Huang, He & Li, Zhipeng, 2015. "Procurement auctions with ex-ante endogenous bribery," Economic Modelling, Elsevier, vol. 47(C), pages 111-117.

    More about this item

    Keywords

    auction; corruption; collusion;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • 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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