Auctions as Collusion Devices
AbstractThis paper develops an economic argument relating auctions to high marketprices. At the core of the argument is the claim that market competition andbidding in an auction should be analyzed as part of one game, where the pricingstrategies in the market subgame depend on the bidding strategies during theauction.I show that the only equilibrium in the overall game that is consistentwith the logic of forward induction is the one where firms bid an amount(almost) equal to the profits of the cooperative market outcome and follow acooperative pricing strategy in the market game resulting in high prices.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-017/1.
Date of creation: 19 Feb 2003
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auctions; market collusions.;
Find related papers by JEL classification:
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-27 (All new papers)
- NEP-COM-2003-04-27 (Industrial Competition)
- NEP-IND-2003-04-27 (Industrial Organization)
- NEP-MIC-2003-04-29 (Microeconomics)
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