The effect of corruption on bidding behavior in first-price auctions

Abstract

a b s t r a c tWhen 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.

Preferred suppliers in auction markets

“…After substituting these two expressions, and the expression for the EP PA from , into the difference in joint surplus, and rearranging terms, we find that The third term on the right‐hand side is zero because the integral is the definition of the expected profits E Π of a supplier in the auction without preference. Combining the first two terms, we obtain the following lower bound on the difference in the joint surplus: Arozamena and Weinschelbaum (2004) and Porter and Shoham (2005) have examined the bidding behavior of n symmetric suppliers in a first‐price auction when another supplier has a ROFR. Both articles demonstrate that [ b FPA ( c ) − b ( c )] is positive for all c if the inverse hazard rate function of the cost distribution [1 − G ( c )]/ g ( c ) is decreasing and convex.…”

Procurement under public scrutiny: auctions versus negotiations

“…First, the auctioneer can favor a seller by allowing her to adjust her bid in a first‐price auction after observing all of the competing bids (right of first refusal or bid rigging). In this case, the final allocation will be inefficient and the surplus of the buyer diminishes (Arozamena and Weinschelbaum, ; Burguet and Perry, , ; Cai, Henderson, and Zhang, ; Compte, Lambert‐Mogiliansky, and Verdier, ; Menezes and Monteiro, ; Lengwiler and Wolfstetter, ). In our model, the auction takes place under public scrutiny.…”

“…First, the favorite seller is exogenously given and the exact nature of the collusive agreement has no impact on the subsequent interaction. In this case, it is convenient to assume that the agent just maximizes the joint surplus of himself and his favorite seller (Arozamena and Weinschelbaum, ; Naegelen and Mougeot, ). Second, the favorite seller is exogenously given and the agent and the favorite seller negotiate about the compensation of the agent (Burguet and Perry, , ; Celentani and Ganuza, ; Laffont and Tirole, ).…”

“…First-price auctions with a right of first refusal have been studied, among others, byArozamena and Weinschelbaum (2009),Burguet and Perry (2007),Cai, Henderson, and Zhang (2013),Compte, Lambert-Mogiliansky, and Verdier (2005),Menezes and Monteiro (2006), orLengwiler and Wolfstetter (2010).28 See Athey(2001)for a proof.29 If the agent breaks ties independent of θ but in the same way in the auction and the negotiation, all results from the previous sections remain valid. This, for example, can be the case if bribery takes place before the agent has learned θ .…”

“…First‐price auctions with a right of first refusal have been studied, among others, by Arozamena and Weinschelbaum (), Burguet and Perry (), Cai, Henderson, and Zhang (), Compte, Lambert‐Mogiliansky, and Verdier (), Menezes and Monteiro (), or Lengwiler and Wolfstetter ().…”