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Collusion via Signaling in Multiple Object Auctions with Complementarities- An Experimental Test

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  • Anthony M. Kwasnica

    (Department of Management Science and Information Systems,P ennsylvania State University,)

  • Katerina Sherstyuk

    (Department of Economics, University of Hawaii at Manoa)

Abstract

We experimentally study bidder collusion in open ascending auctions for multiple objects. The project is based on the theoretical results by Brusco and Lopomo (1999), who give theoretical support for the following claims: (1) simultaneous ascending bid auctions can be vulnerable to collusion in the multi-object case; (2) The sole presence of complementarities does not hinder collusion; (3) Collusion is a “lown umbers” phenomenon. We focus on a simultaneous ascending auction for two objects. Several experimental treatments are considered: markets with low numbers (2 bidders) and high numbers (5 bidders), no complementarities (additive values) and complementarities (superadditive values). Experimental results are largely consistent with the theory. Collusion is often observed in two-person markets with or without complementarities. Previous experience under the same treatment greatly facilitates bidder collusion. There is no evidence of collusion in five-person markets. We further study collusive strategies adopted by bidders in two-person markets. While most strategies make extensive use of signaling, in the presence of complementarities, bidders use collusive strategies that are supported only by repeated play.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_01-2.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200102.

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Length: 45 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:hai:wpaper:200102

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References

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  1. Robert H. Porter & J. Douglas Zona, 1999. "Ohio School Milk Markets: An Analysis of Bidding," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 263-288, Summer.
  2. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  3. Isaac, R. Mark & Ramey, Valerie & Williams, Arlington W., 1984. "The effects of market organization on conspiracies in restraint of trade," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 191-222, June.
  4. Katerina Sherstyuk, 1999. "Collusion Without Conspiracy: An Experimental Study of One-Sided Auctions," Experimental Economics, Springer, vol. 2(1), pages 59-75, August.
  5. Robert H. Porter & J. Douglas Zona, 1992. "Detection of Bid Rigging in Procurement Auctions," NBER Working Papers 4013, National Bureau of Economic Research, Inc.
  6. Kwasnica, Anthony M., 2000. "The choice of cooperative strategies in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 323-346, July.
  7. Peter Cramton & Jesse Schwartz, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Papers of Peter Cramton 00jre, University of Maryland, Department of Economics - Peter Cramton, revised 09 Mar 1999.
  8. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  9. Steven Tucker & Charles Noussair & Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 461-490, 07.
  10. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Milgrom, Paul, 1998. "Game theory and the spectrum auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 771-778, May.
  12. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  13. Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-60, June.
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Cited by:
  1. LOVO, Stefano & ALBANO, Gian Luigi & GERMANO, Fabrizio, 2002. "On some collusive and signaling equilibria in ascending auctions for multiple objects," Les Cahiers de Recherche 765, HEC Paris.
  2. Leslie Marx, 2006. "Economics at the Federal Communications Commission," Review of Industrial Organization, Springer, vol. 29(4), pages 349-368, December.
  3. Sherstyuk, Katerina, 2008. "Some Results on Anti-Competitive Behavior in Multi-Unit Ascending Price Auctions," Handbook of Experimental Economics Results, Elsevier.
  4. David McAdams & Giuseppe Lopomo & Leslie Marx & Brian Murray, . "Carbon Allowance Auction Design: An Assessment of Options for the U.S," Working Papers 10-64, Duke University, Department of Economics.
  5. Katerina Sherstyuk, 2002. "Simultaneous Ascending Auctions With Common Complementarities," Working Papers 200212, University of Hawaii at Manoa, Department of Economics.
  6. Sandro Brusco & Giuseppe Lopomo, 2004. "Simultaneous Ascending Bid Auctions with Privately Known Budget Constraints," Levine's Bibliography 122247000000000373, UCLA Department of Economics.
  7. Arthur Zillante, 2005. "Spaced Out Monopolies: Theory and Empirics of Alternating Product Releases," Industrial Organization 0505008, EconWPA.
  8. Giuseppe Lopomo & Leslie M. Marx & David McAdams & Brian Murray, 2011. "Carbon Allowance Auction Design: An Assessment of Options for the United States," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 25-43, Winter.

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