Another form of auction, involving a predetermined discount, also lends itself to corruption: P sets both the initial price and a maximum discount, which remains secret. The contract goes to the firm whose bid comes closest to the price minus the correct discount. Bids that are either too high or too low are ruled out. This type of auction gives P something specific to sell: the amount of the optimal discount. If, for example, the set price is 1 billion lire and the "secret" maximum reduction is 15 percent, the firm which knows this will bid 850 million lire and win the contract. In this form of auction firms cannot collude without the assistance of P. If P is clever, he does not locate the threshold at a point which might easily be arrived at by chance. Instead, he chooses from a wide range of values, and even includes fractions to avoid the embarrassment of having more than one firm hit the mark (I-3). In principle this system could lead to the creation of monopolies in which P and a particular firm establish a long-term alliance at the expense of all other competitors. In practice, however, excluded firms would retaliate either by recruiting protectors of their own or going to the police.

DEFINE: Explains how the secret-discount auction variant works and why it lends itself to corruption unlike collusion-based forms.

Diego Gambetta, The Sicilian Mafia The Busi…, loc. 579