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Reverse competition is most often a 3 part deal where the buyer may or may not know about the commission, kickback, or finders fee. There are always three parties to make this work.
Sadly, three party scams are not the exception - they are the rule. One CEO I talked to tells me he estimates that 60% of all three party transactions are crooked. Money spent on private-eye sting operations and audits designed to catch higher costs, is money well spent. If your company pays average costs - assume those costs include kickbacks.
The title insurance scam. The house buyer is often required to have title insurance by the lender. If the lender or real estate agent points the buyer to a title insurance company, he gets a commission based on the cost of the insurance. The agent will likely get the biggest kickback from the most expensive insurance company so competition not only fails to work; it works in reverse. Most often, the buyer has no knowledge of the commission. In states that enact disclosure laws, the commission simply goes under the table.
Suppose a city needs to add a water system. The buyer (AKA us tax payers) end up paying a huge amount. The engineer gets paid on commission based on the total cost of the project and often hands kickbacks to the people on the water board. (The kick back is often in the form of a sweetheart business deal for the water board member that provides a return no one else would dream of getting. This insures that the board member makes sure they use his particular engineer).
The first thing the Engineer will do is call FHA to find out the maximum the city can borrow on the project. This is what the project will cost as it maximizes his commission. To pump up the cost of a simple project the engineer will play with the specifications to add the most expensive controls and materials available. He can also write the specifications so that the only vendor able to deliver is one he has a kickback arrangement with.
Most corporate buyers get kick backs. Sometimes it is in the form of free meals. Often it is with side deals similar to what politicians get. Sometimes it is just cash. Again there are three parties:
The higher the cost of the material, the more money there is to kickback to the buyer. Buyers will often use an approved vendors list to protect their arrangements. Some sellers will provide the buyer with prostitutes (whether the buyer knows or not) and might even use the situation as black mail so the relationship remains long term and the kickbacks don't get excessive.
The courting ritual between the buyer and seller usually starts with the seller asking to "meet for lunch". It might not go further, but that lunch will cost the buying corporation; not the seller. In the next stage, the buyer might bring up travel places he wishes he could go to, and the seller might tell him about his companies special travel agent that can help him out. At some point, it is in the interest of the buyer and the seller to cut out both sides businesses and split the overcharge in a variety of ways.
Your elected officials (Pols) are really in the same place as corporate buyers. They buy things for the tax payer, so it is a three party system. They are under the eye of the press, so the kickbacks are more complex. Instead of simply buying influence, the bribe takes the form of some kind of a business deal that turns out to be very lucrative. They may invest in a land deal that no one else would be invited, or they may invest in things like cattle futures and the deal is fixed so that there are astounding returns. Politicians even end up believing they are 'shrewd business men' and don't even realize they are selling their influence.
Sometimes it is simpler, they get to be board members of corporations (yet know nothing about the business) and get a regular check for showing up a few times a year. All this looks legit. It is no wonder that politicians end up with multi-million dollar estates. They also will get kickbacks as campaign contributions. There are rules that in some races the leftover funds can't be used for personal ends, but they are often used to set up phony charitable foundations or hire relatives as consultants and the like. [1]
In this case you are the buyer of the service, but because you don't pay out of your pocket, or only a small fraction of the cost so you don't care what it costs. Unless that is, you don't have insurance and pay cash. Doctors, such as Internists that the patient picks directly generally have reasonable rates, but doctors that are not picked by patients, such as anesthesiologists, radiologist have very high rates. The worst abuse is the hospitals. Your doctor picks the hospital, and you pay the bill so he has no interest in shopping around - unless he gets a kick back or smells how much money is flowing and sets up his own clinic.(Thus the explosion of clinics).
In some states, organized crime has moved into the medical business (because that is where-the-money-is besides banks!) and doctors that offer good rates might find they suddenly have trouble with the medical board. Sometimes they get repeatably sued by fake patients and then get approached by a sympathetic medical group that offers to protect them if they join.
Medicare is the payer of a third party system that is so corrupt that they may well be paying as much for fraudulent services as real. Patients that find out they had an operation billed are contacted and often bribed or threatened to remember what didn't happen. Our government is not doing due diligence. It isn't that hard to look for the scars of incisions for operations billed to the government. For other procedures there is no forensic trail to follow.
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