Collusive Market Sharing and Corruption in Procurement

28 Pages Posted: 21 Oct 2006 Last revised: 12 Oct 2009

Adriane Lambert Mogiliansky

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); New Economic School (NES)

Konstantin Sonin

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)

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.

Keywords: auction, procurement, corruption, collusion

JEL Classification: D 44, H 57, K 42

Suggested Citation

Mogiliansky, Adriane Lambert and Sonin, Konstantin, Collusive Market Sharing and Corruption in Procurement. Journal of Economics and Management Strategy, 2006. Available at SSRN: https://ssrn.com/abstract=939027

Adriane Lambert Mogiliansky

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS)

28, rue des Saints-Peres
75007 Paris
France

New Economic School (NES)

47 Nakhimovsky Prospekt
Moscow
Russia

Konstantin Sonin (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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