Detection of collusion in government procurement auctions

Research on bidder collusion in procurement auctions is reasonably successful in unveiling the mechanisms of collusion among the bidders. But it is relatively weak in forwarding effective practical methods of collusion detection before the winner is declared, because they presuppose the knowledge of collusion in specific auctions. Past studies, however, point out the need for working with bid price-to-reserve price ratios rather than bid prices or winning bid prices, to be free from the problem of heteroscedasticity. They also draw an important inference that the set of collusive data are significantly different from the set of competitive data. On the basis of these basic facts, the current paper outlines a seven-step approach to collusion detection. The approach makes rudimentary statistical analysis of bid price-to-reserve price ratios for all the bidders. The analysis comprises tests of equality of means, medians and variance and tests of skewness, autocorrelation and normality of the ratios. It divides the ratios into two significantly different clusters. The cluster with the higher mean and variance values of the ratios corresponds to collusive bidding with the other cluster corresponding to competitive bidding. The paper proposes the construction of a process control chart to detect occurrence of collusion in an auction immediately after the price bids are opened. The approach is illustrated by applying it to data from procurement auctions for construction projects in a State Department of the Republic of India.     

Risk aversion in auctions with asymmetrically informed bidders: A “desensitizer” from uncertainty

In the context of first-price auctions with asymmetrically informed bidders, we show that risk aversion not only increases a player’s bid, but also makes him less sensitive to the probability that other bidders are informed about his private valuation.     

An Improved Reverse Auction for Addressing Water Quality in Agricultural Watersheds Using Coupled Simulation-Optimization Models

As nutrients and sediment in agricultural watersheds continue to degrade water quality, attention is increasingly given to reverse auctions to cost-effectively address these pollutants. Typically, reverse auctions include a selection process which depends on both the monetary bid and a ranking of the environmental benefit, where the latter is often approximated using simple models, such as the Universal Soil Loss Equation （USLE）. When the environmental objective is to improve water quality, the cost-effectiveness of such ranking methods cannot always be assured since simple models may poorly approximate the effects on downstream water quality. In this paper, we introduce an alternative reverse auction approach that takes advantage of richer watershed process models and optimization tools that are now much more commonly available. This ＂improved＂ reverse auction allows decision-makers to better consider the cost-effective assignment of conservation practices and to address water quality or other environmental objectives. In a spatially detailed simulation, we demonstrate how this approach can improve the design of a reverse auction for the Raccoon River Watershed in Iowa, and estimate the potential gains from using the simulation-optimization approach relative to simpler ranking methods for selecting bids. We also point out that simple bid ranking schemes may not yield sufficient nutrient reductions to achieve water quality goals but bids areeasily selected to achieve any feasible water quality improvement in the ＂improved＂ auction process.     

Optimal auctions with multidimensional types and the desirability of exclusion

Within the context of a single-unit, independent private values auction model, we show that if bidder types are multidimensional, then under the optimal auction exclusion of a positive measure of bidder types occur. The results complements Armstrong’s (1996) exclusion of types result.     

Buyer Collusion and Efficiency of Government Intervention in Wheat Markets in Northern India: An Asymmetric Structural Auctions Analysis

This article uses auction theory to analyze wholesale markets for wheat in Northern India. This approach enables us to characterize the market in terms of buyer asymmetries, to detect the existence of collusion, and to quantify its impact on market prices. We show that buyer asymmetries exacerbate the downward impact of collusion on prices. The article also considers whether the government paid too much for the wheat it procured at the minimum support price, and shows that for our sample it did not. The article is based on a primary survey of two wholesale markets in North India.     

Highway franchising and real estate values

It has become increasingly common worldwide to auction the construction and operation of new highways to the bidder that charges the lowest toll. The resulting highway franchises often entail large increases in the value of adjoining land developments. We build a model to assess the welfare implications of allowing large developers to participate in these auctions. Developers bid more aggressively than independent construction companies because lower tolls increase the value of their land holdings. Therefore developer participation unambiguously increases welfare, yet this increase is not necessarily monotonic in the number of developers participating. Welfare also increases when large developers can bid jointly.     

Consumer motivations and concerns in online auctions: an exploratory study

This investigates the reasons behind the dramatic growth of Internet auction companies such as eBay, exploring into why so many consumers have been motivated to turn to online auctions to purchase and sell goods. It is found that the ability to purchase items at lower prices than from retail stores is the primary motivation, along with having access to previously unobtainable items. Concerns mainly relate to potential fraudulent transactions, although the negative feedback system is found to be vital in the reduction of fears over fraud. Interaction with other auction users is found to be important for practical reasons such as information seeking, rather than for enjoyment. The main conclusion is that the benefits of using Internet auctions far outweigh the risks involved.     

Continuity of the first price auction Nash equilibrium correspondence

Summary. Despite the complexity of the first price auction in the general asymmetric case, analytical results have started to emerge in the literature. Authors have also searched to gain insights by computing numerical estimates of the equilibria for some probability distributions of the valuations. This paper proves that the Nash equilibrium of the first price auction depends continuously, for the weak topology, on the valuation distributions and thus brings robustness to the numerical results as well as some theoretical results. As an example of application, we disprove a conjecture of comparative statics. Received: February 1, 1999; revised version: July 27, 2001     

Economics at the Federal Communications Commission

This article reviews several issues confronted by the Federal Communications Commission (FCC) over the past year and discusses some of the economic analysis employed by the FCC in examining these issues. The article also identifies areas in which future academic research would be valuable to the agency.Thanks are due to Heather Dixon, David Fiske, Evan Kwerel, Jonathan Levy, and Larry White (the editor) for useful comments. The opinions expressed here are those of the author and do not necessarily reflect those of the FCC, its staff, or commissioners.