BRIBERY BETWEEN THE BIDDERS AND THE AUCTIONEER IN FIRST-PRICE
SEALED-BID AUCTIONS
Þevket Alper KOÇ (Texas A&M University)
William S. NEILSON (Texas A&M University)
Ordinarily in a first-price sealed-bid auction, all bidders submit
their bids simultaneously, and the highest bidder receives the
item and pays his bid. In this standard framework, there is no
distinction between the seller and the auctioneer. Realistically,
though, the seller must hire an auctioneer, leading to the possibility
of corruption.
In this paper, corruption takes the following form. The auctioneer
approaches the bidders and tells them if they pay a bribe of a
certain amount and if they submit the highest bid, the auctioneer
will change their bid so that they only have to pay the second-highest
bid.
We study bribery between the auctioneer and bidders in a first-price
auction and how it affects the bidding functions of the bidders
and the welfare positions of the bidders, auctioneer and seller
when it is common knowledge for bidders that the auctioneer is
corrupt. We show that any bidder who pays the bribe bids his valuation
and if a bidder does not pay the bribe and all the bidders with
valuation less than his value do not pay the bribe, he bids his
standard first-price bid.
We show that Corruption has no effect on either the efficiency
of the auction or the expected payoffs of the bidders. However,
bribery results in a transfer of wealth from the seller to the
auctioneer.
