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Bid Rigging and the Threat of Government Prosecution

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  • Chantale LaCasse

Abstract

In this article, I develop a simple bidding model in which collusion is endogenous. Buyers at a first-price sealed-bid auction decide whether to rig their bids given that they face the threat of government prosecution. A legal authority chooses whether to investigate the buyers on the basis of the bids tendered. In the unique sequential equilibrium of the game, buyers rig their bids with positive probability, but the legal authority can never ascertain, on the basis of the bids alone, that a conspiracy has formed.

Suggested Citation

  • Chantale LaCasse, 1995. "Bid Rigging and the Threat of Government Prosecution," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 398-417, Autumn.
    • Handle: RePEc:rje:randje:v:26:y:1995:i:autumn:p:398-417
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    Cited by:

    1. Joseph E. Harrington, Jr., 2004. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 651-673, Winter.
    2. Harrington, Joseph Jr. & Chen, Joe, 2006. "Cartel pricing dynamics with cost variability and endogenous buyer detection," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1185-1212, November.
    3. Maarten C.W. Janssen & Eric Rasmusen, 1998. "Bertrand Competition under Uncertainty," Tinbergen Institute Discussion Papers 98-083/1, Tinbergen Institute.
    4. Flavia Roldán, 2012. "Collusive Networks in Market‐Sharing Agreements in the Presence of an Antitrust Authority," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(4), pages 965-987, December.
    5. Roldan, Flavia, 2011. "Covert networks and antitrust policy," IESE Research Papers D/932, IESE Business School.
    6. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
    7. John Raftery, 1999. "Quasi-rational behaviour in the property and construction market," Construction Management and Economics, Taylor & Francis Journals, vol. 17(1), pages 21-27.
    8. Sylvain Chassang & Kei Kawai & Jun Nakabayashi & Juan M. Ortner, 2019. "Data Driven Regulation: Theory and Application to Missing Bids," NBER Working Papers 25654, National Bureau of Economic Research, Inc.
    9. Roldan, Flavia, 2010. "Collusive networks in market-sharing agreements under the presence of an antitrust authority," IESE Research Papers D/854, IESE Business School.
    10. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, February.
    11. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
    12. Juan Ortner & Sylvain Chassang & Jun Nakabayashi & Kei Kawai, 2020. "Screening Adaptive Cartels," Working Papers 2020-59, Princeton University. Economics Department..
    13. Johannes Wachs & J'anos Kert'esz, 2019. "A network approach to cartel detection in public auction markets," Papers 1906.08667, arXiv.org.
    14. Carlos Ponce & Flavia Roldán, 2016. "Antitrust policies in network environments," Documentos de Investigación 112, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    15. Ricardo Gonçalves, 2004. "Favouritism and cartel disruption in first-price auctions," Working Papers de Economia (Economics Working Papers) 15, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
    16. Häckner, Jonas & Herzing, Mathias, 2022. "The strategic interaction between cartels and anti-trust authorities," International Review of Law and Economics, Elsevier, vol. 70(C).
    17. Patrick Hummel, 2018. "Reserve prices in repeated auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(1), pages 273-299, March.
    18. Natalia Fabra, 2003. "Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 271-293, September.

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