Bribery and Its Welfare Effects in First-Price Sealed-Bid Auctions

Abstract

I study an auction in which the auctioneer, an agent of the seller, approaches all the bidders and tells them that if they pay a bribe and if they submit the highest bid, he will change their bid so that they only have to pay the second-highest bid. In equilibrium, only bidders who have valuations higher than some critical value pay the bribe, and they bid their valuations. 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.