Bribing in second-price auctions

An IPV 2-bidder second-price auction is preceded by two rounds of bribing: prior to the auction each bidder can try to bribe his rival to depart from the auction, so that he (the briber) will become the sole participant and obtain the good for the reserve price. Bribes are offered sequentially according to an exogenously given order - there is a first mover and a second mover. I characterize the unique efficient collusive equilibrium in monotonic strategies; in it, the second mover extracts the entire collusive gain. This equilibrium remains an equilibrium even when valuations are interdependent, and if they are separable then the full surplus extraction result continues to hold. Additionally, a family of pooling equilibria is studied, in which all the types of the first mover offer the same bribe.Second-price auctions, collusion, bribing, signaling, surplus extraction

Bribery and Public Procurement - An Experimental Study

A procurement contract is granted by a bureaucrat (the auctioneer) who is interested in a low price and a bribe from the provider. The optimal bids and bribes are derived based on an iid private cost assumption. In the experiment, bribes are negatively framed (betweensubjects treatment) to capture that society is better off if bribes are rare or low. Although bids are lower than predicted, behavior is qualitatively in line with the linear equilibrium prediction. When bribes generate a negative externality, there is a significant increase in the variability of the data.Corruption, Procurement Auctions

Bribery and Favoritism by Auctioneers in Sealed Bid Auctions

No abstract.

Using Forward Contracts to Reduce Regulatory Capture

A fully unbundled, regulated network fi?rm of unknown efficiency level can undertake unobservable effort to increase the likelihood of low downstream prices, e.g., by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the ?firm contingent on realized downstream prices. Alternatively, the regulator can propose to the ?firm to sell the following forward contracts: the fi?rm pays the downstream price to the owners of a contract, but receives the expected value of the contracts when selling them to a competitive fi?nancial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic probability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.Incentive regulation, regulatory capture, virtual power plants

Controlling Collusion in Auctions: The Role of Ceilings and Reserve Prices

We examine a simple model of collusion under a single-object second-price auction. Under the appropriate parameter conditions, in particular as long as collusion is neither too easy, nor too difficult, we find that the optimal policy involves both an effective ceiling, as well as a reserve price.Auctions; ceilings; collusion; reserve prices

Collusive market-sharing and corruption in procurement

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.auction ; corruption ; collusion

Controlling collusion in auctions: The Role of ceilings and reserve prices

We examine a simple model of collusion under a single-object secondprice auction. Under the appropriate parameter conditions, in particular as long as collusion is neither too easy, nor too difficult, we find that the optimal policy involves both an effective ceiling, as well as a reserve price set at the lowest bidder valuation.Auctions, ceilings, collusion, reserve prices

Corruption and Collusion in Procurement Tenders

There is a mounting body of evidence that collusive agreements between bidders in large multiple-object procurement tenders are often supported by a corrupt administrator. In a first-price multiple-object auction, if the auctioneer has some legal discretion to allow bidders to readjust their offers prior to the official opening, he also has incentives to extract bribes from agents in exchange for abusing this discretion. In particular, corrupt agent’s incentives to receive bribes are closely linked with that of creating a ’bidding ring’ as the agent’s discretionary power gains value when firms collude. Thus, corruption generates focal equilibria where bidders fully refrain from competing with each other. Additional flexibility of the auction format such as the possibility to submit package bids, which is often considered to be efficiency-enhancing in theoretical literature, increases the risk of collusion in the presence of corruption. Such problems are more likely to arise in tenders, where participating firms are not too close competitors.auctions, corruption, collusion