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Is Collusion-proof Procurement Expensive?

Author

Listed:
  • Gaurab Aryal

    (University of Chicago)

  • Maria Florencia Gabrielli

    (Universidad Nacional de Cuyo/CONICET)

Abstract

Collusion adversely affects procurement cost and efficiency. It is hard to quantify just how prevalent collusion is, but it’s safe to assume that there’s a lot of collusion going on. Detecting collusion from (just) bid data is hard so the extent of the damages can never be known. A natural response would have been to use collusion-proof procurement, yet, such auctions are hardly used. Why? Using California highway procurements data, we estimate the extra cost of implementing a collusion-proof auction to be anywhere between 1.6% to 5%. Even after we factor in the marginal excess burden of taxes needed to finance the expenses, the cost ranges between 2.08% and 6.5%, which is too small to be the answer. Since other than cost there is no obvious answer, this shows that there is a lacuna in the empirical auction literature.

Suggested Citation

  • Gaurab Aryal & Maria Florencia Gabrielli, 2023. "Is Collusion-proof Procurement Expensive?," Working Papers 248, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:248
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/248.pdf
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    References listed on IDEAS

    as
    1. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    2. Aryal, Gaurab & Gabrielli, Maria F., 2013. "Testing for collusion in asymmetric first-price auctions," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 26-35.
    3. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 207-257.
    4. Gaurab Aryal & Maria F. Gabrielli & Quang Vuong, 2021. "Semiparametric Estimation of First-Price Auction Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 39(2), pages 373-385, March.
    5. Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-460, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Procurements; Collusion-Proof Auction; Local Polynomial Estimator;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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