Procurement cartels and the fight against (outsider) bribing

We study the relationship between collusion and corruption in a stylized model of repeated procurement where the cost of reporting corrupt bureaucrats gives rise to a free riding problem. Cooperation among long-run (honest) firms alleviates free-riding in reporting. However, it also facilitates collusion in bidding by increasing the value of the collusive rent. In turn, bidding collusion facilitates cooperation in reporting by increasing the value of having honest bureaucrats, generating a trade-off between collusion and corruption.