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Using Reserve Prices To Deter Collusion In Procurement Competition

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  • Charles J. Thomas

Abstract

To enhance our understanding of collusion in procurement settings, this paper quantitatively evaluates how the buyer's choice of a reserve price influences the sustainability of two previously devised collusive schemes. If the buyer does not select its reserve price strategically, then collusion may be sustainable for a wide range of plausible discount factors. However, even mildly sophisticated reserve price selection can dramatically shrink the set of discount factors for which collusion is sustainable. These findings support existing arguments that buyers are vulnerable to collusion, but they also suggest that buyers possess tools that may profitably induce sellers to act competitively.

Suggested Citation

  • Charles J. Thomas, 2005. "Using Reserve Prices To Deter Collusion In Procurement Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 53(3), pages 301-326, September.
    • Handle: RePEc:bla:jindec:v:53:y:2005:i:3:p:301-326
    DOI: 10.1111/j.1467-6427.2005.00257.x
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    Cited by:

    1. Jeroen Hinloopen & Sander Onderstal, 2010. "Collusion and the Choice of Auction: An Experimental Study," Tinbergen Institute Discussion Papers 10-120/1, Tinbergen Institute, revised 28 Mar 2013.
    2. Pablo Zarate, 2021. "Signaling corruption through conspicuous consumption," Asociación Argentina de Economía Política: Working Papers 4531, Asociación Argentina de Economía Política.
    3. Sümeyra Atmaca & Riccardo Camboni & Elena Podkolzina & Koen Schoors & Paola Valbonesi, 2022. "Setting reserve prices in repeated procurement auctions," "Marco Fanno" Working Papers 0289, Dipartimento di Scienze Economiche "Marco Fanno".

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