The Economics of Collusion by Marshall Robert C.;Marx Leslie M.; & Leslie M. Marx

Author:Marshall, Robert C.;Marx, Leslie M.; & Leslie M. Marx [Marshall, Robert C.]
Language: eng
Format: epub
ISBN: 3339441
Publisher: MIT Press
Published: 2012-08-15T00:00:00+00:00

III

Economics of Bidding Rings

In this part of the book, we focus on bidding rings at auctions and procurements. Much of the economic analysis of auctions applies to procurements and vice versa. In an auction, bidders have values associated with owning the object, and they bid to maximize their expected surplus, which is the difference between their value for the object and how much they have to pay if they win, times the probability that they win. In a procurement, bidders have costs for providing the object being procured, and they bid to maximize their expected surplus, which is the difference between the amount they would be paid if they win and their cost, times the probability that they win. The often tight relation between auctions and procurements means that the issues faced by bidding rings are similar regardless of whether the ring operates at an auction or procurement. Thus, we do not present separate analyses for auctions versus procurements.

In chapter 8, we discuss the gains to the suppression of competition by bidders. In chapter 9, we discuss the structures required to successfully implement the suppression of rivalry, providing examples based on real cases. In chapter 10, we consider how the design of an auction or procurement affects the structures required for a ring to successfully operate.

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