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Collusive Market Sharing and Corruption in Procurement
Author(s) -
LambertMogiliansky Ariane,
Sonin Konstantin
Publication year - 2006
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1530-9134.2006.00121.x
Subject(s) - collusion , bidding , cartel , discretion , language change , business , common value auction , economic rent , procurement , microeconomics , incentive , competition (biology) , industrial organization , economics , marketing , law , art , ecology , literature , political science , biology
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, that is, 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.