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Collusion and Equilibrium Selection in Auctions

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  • Anthony M. Kwasnica
  • Katerina Sherstyuk

Abstract

We study bidder collusion and test the power of payoff dominance as an equilibrium selection principle in experimental multi-object ascending auctions. In these institutions low-price collusive equilibria exist along with competitive payoff-inferior equilibria. Achieving payoff-superior collusive outcomes requires complex strategies that, depending on the environment, may involve signalling, market splitting, and bid rotation. We provide the first systematic evidence of successful bidder collusion in such complex environments without communication. The results demonstrate that in repeated settings bidders are often able to coordinate on payoff-superior outcomes, with the choice of collusive strategies varying systematically with the environment. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 117 (2007)
Issue (Month): 516 (01)
Pages: 120-145

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Handle: RePEc:ecj:econjl:v:117:y:2007:i:516:p:120-145

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Cited by:
  1. Martin Sefton & Ping Zhang, 2009. "Divisible-good uniform price auctions: the role of allocation rules and communication among bidders," Discussion Papers 2009-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Sherstyuk, Katerina & Dulatre, Jeremy, 2008. "Market performance and collusion in sequential and simultaneous multi-object auctions: Evidence from an ascending auctions experiment," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 557-572, March.
  3. Lavi, Ron & Oren, Sigal, 2012. "Side-communication yields efficiency of ascending auctions: The two-items case," Games and Economic Behavior, Elsevier, vol. 76(2), pages 439-456.
  4. Katerina Sherstyuk, 2009. "A comparison of first price multi-object auctions," Experimental Economics, Springer, vol. 12(1), pages 42-64, March.
  5. Francesco Feri & Anita Gantner & Wolfgang Höchtl & Rupert Sausgruber, 2013. "The pivotal mechanism revisited: some evidence on group manipulation," Experimental Economics, Springer, vol. 16(1), pages 23-51, March.
  6. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multi-Unit Auctions," Working Papers 201301, University of Hawaii at Manoa, Department of Economics.
  7. Kaplan, Todd & Ruffle, Bradley, 2007. "Which way to cooperate," MPRA Paper 3381, University Library of Munich, Germany.
  8. Dass, Mayukh & Jank, Wolfgang & Shmueli, Galit, 2011. "Maximizing bidder surplus in simultaneous online art auctions via dynamic forecasting," International Journal of Forecasting, Elsevier, vol. 27(4), pages 1259-1270, October.
  9. Sascha Füllbrunn, 2007. "Collusion or Sniping in simultaneous ascending Auctions," FEMM Working Papers 07025, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  10. Hu, Audrey & Offerman, Theo & Onderstal, Sander, 2011. "Fighting collusion in auctions: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 84-96, January.
  11. Tibor Neugebauer & Sascha Füllbrunn, 2008. "Anonymity deters collusion in hard-close auctions: Experimental Evidence," LSF Research Working Paper Series 08-09, Luxembourg School of Finance, University of Luxembourg.
  12. Katerina Sherstyuk, 2011. "Complexity and bidder behavior in iterative auctions," Economics Bulletin, AccessEcon, vol. 31(4), pages 2769-2776.

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