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The Effect of Corruption on Bidding Behavior in First-Price Auctions

  • Federico Weinschelbaum


    (Department of Economics, Universidad de San Andres)

  • Leandro Arozamena

    (Universidad Torcuato Di Tella)

When the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders' welfare and expected revenue. Our results apply as well to the situation--unrelated to corruption--where one of the bidders is granted a right of first refusal.

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Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 82.

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Date of creation: Feb 2005
Date of revision: Aug 2005
Publication status: Published in European Economic Review, Vol. 53, Issue 6, August 2005, pp. 645-657
Handle: RePEc:sad:wpaper:82
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  1. Menezes, Flavio M. & Monteiro, Paulo Klinger, 2006. "Corruption and auctions," Journal of Mathematical Economics, Elsevier, vol. 42(1), pages 97-108, February.
  2. Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
  3. 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.
  4. repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
  5. 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.
  6. 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.
  7. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  8. 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.
  9. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
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  11. 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.
  12. Kenneth HENDRICKS & Robert H. PORTER, 1989. "Collusion in Auctions," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 217-230.
  13. Roberto Burguet & Martin K. Perry, 2015. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
  14. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
  15. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  16. 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.
  17. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  18. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
  19. Jones, C. & Menezes, F., 1995. "Auctions and Corruption: How to Compensate the Auctioneer," Papers 291, Australian National University - Department of Economics.
  20. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  21. 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.
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