Collusive Market Sharing and Corruption in Procurement

26 Pages Posted: 26 Oct 2006

See all articles by Ariane Lambert-Mogiliansky

Ariane Lambert-Mogiliansky

Paris School of Economics (PSE)

Konstantin Sonin

University of Chicago - Harris School of Public Policy; 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, 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.

Suggested Citation

Lambert, Ariane and Sonin, Konstantin, Collusive Market Sharing and Corruption in Procurement. Journal of Economics & Management Strategy, Vol. 15, No. 4, pp. 883-908, Winter 2006, Available at SSRN: https://ssrn.com/abstract=940137 or http://dx.doi.org/10.1111/j.1530-9134.2006.00121.x

Ariane Lambert (Contact Author)

Paris School of Economics (PSE) ( email )

48 bd JOURDAN
Paris, 75014 75014
France

Konstantin Sonin

University of Chicago - Harris School of Public Policy ( 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)

London
United Kingdom

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