Information acquisition versus information manipulation in multi-period procurement markets

- Information acquisition by buyer is vulnerable to information manipulation by suppliers.
- Information acquisition by buyer is a driving force for the formation of a cartel.
- The cartel can misinform the buyer and bias his procurement decision to its advantage.
- Bid ceiling maybe useful for the buyer to impede this type of bidder collusion.

In this study, we present a theoretical analysis of the strategic behavior of a bidder's cartel in a multi-period procurement auction market. A buyer employs a Bayesian update mechanism to acquire information from past auction bidding data to formulate his estimation of the expected future price, and thus his procurement decision depends on both his expected future price and the current auction price. The cartel can both increase its profits and mask its presence by manipulating the information transmitted to the buyer. In fact, by employing some informational strategies, the cartel can misinform the buyer and skew the intertemporal procurement decision to its advantage. Finally, we find that imposing a bidding ceiling that exceeds the observed current auction price may be a feasible weapon that allows the buyer to reduce the adverse effects of bidder collusion.