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Simple collusive agreements in one-shot first-price auctions

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  • Kivetz, Gil
  • Tauman, Yair
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    Abstract

    The paper demonstrates that collusion in a private value first price auction is likely to occur even in a one shot interaction. The strategies of the colluding parties must be mixed since agreeing to submit a bid equal to the reservation price of the seller provides the incentive for that bidder to cheat on the designated winner. We deal with a complete information environment with arbitrary number of bidders. We characterize the sensible equilibrium outcome where the two bidders with the highest valuations collude. We show that the equilibrium outcome is unique and that the probability of collusion exceeds 1/2.

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    Bibliographic Info

    Article provided by Elsevier in its journal Games and Economic Behavior.

    Volume (Year): 69 (2010)
    Issue (Month): 1 (May)
    Pages: 138-149

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    Handle: RePEc:eee:gamebe:v:69:y:2010:i:1:p:138-149

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    Web page: http://www.elsevier.com/locate/inca/622836

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    1. Cramton, Peter & Gibbons, Robert & Klemperer, Paul, 1987. "Dissolving a Partnership Efficiently," Econometrica, Econometric Society, vol. 55(3), pages 615-32, May.
    2. Peter Eso & James Schummer, 2002. "Bribing and Signalling in Second Price Auctions," Discussion Papers 1357, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Kenneth HENDRICKS & Robert H. PORTER, 1989. "Collusion in Auctions," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 217-230.
    5. Marc S. Robinson, 1985. "Collusion and the Choice of Auction," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 141-145, Spring.
    6. Chien-Liang Chen & Yair Tauman, 2006. "Collusion in one-shot second-price auctions," Economic Theory, Springer, vol. 28(1), pages 145-172, 05.
    7. Leslie M. Marx & Robert C. Marshall, 2004. "Bidder Collusion," Econometric Society 2004 North American Winter Meetings 108, Econometric Society.
    8. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November.
    9. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
    10. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
    11. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
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