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An experimental investigation of collusion in hard-close auctions: partners and friends

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Author Info

  • Sascha Füllbrunn

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Tibor Neugebauer

    ()
    (Leibniz University of Hanover)

Abstract

We study collusion in the finitely repeated, hard-close auction experiment. Three subjects, identified by their bidder name, simultaneously compete in three auction markets. Due to the experimental design, subjects are enabled to the sharing of the benefits of cooperation by coordinating their individual demands. Similar collusive behavior has been suggested to play an important role in empirical markets (Klemperer 2002). We consider two treatments. In the first one, the partners treatment, subjects who are identified by bidder-names interact repeatedly but anonymously with each other. In the second one, the friends treatment, groups of three subjects who participate together in the experiment, interact repeatedly with another. In the experiment, we do not observe tacit collusion in the partners treatment; the outcome is efficient and prices converge quickly to the rational equilibrium prediction. Only in the friends treatment, cooperation gains can be realized, but much less cooperation is observed than one would imagine. We conclude that in the laboratory, cooperation is difficult to achieve in the hard-close auction market if anonymity prevails.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_24.pdf
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07024.

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Length: 24 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:mag:wpaper:07024

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Keywords: multi unit auctions; collusion; experimental economics;

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References

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  1. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1093-1103, September.
  2. repec:att:wimass:9102 is not listed on IDEAS
  3. Heidrun C. Hoppe & Philippe Jehiel & Benny Moldovanu, 2006. "License Auctions and Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(2), pages 371-396, 06.
  4. Sherstyuk, Katerina, 2008. "Some Results on Anti-Competitive Behavior in Multi-Unit Ascending Price Auctions," Handbook of Experimental Economics Results, Elsevier, Elsevier.
  5. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  6. Sandro Brusco & Giuseppe Lopomo, 2002. "Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 69(2), pages 407-436.
  7. 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, Elsevier, vol. 5(2), pages 191-222, June.
  8. Grimm, Veronika & Riedel, Frank & Wolfstetter, Elmar, 2003. "Low price equilibrium in multi-unit auctions: the GSM spectrum auction in Germany," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(10), pages 1557-1569, December.
  9. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 6(2), pages 139-159, June.
  10. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(3), pages 145-162, Summer.
  11. Andreoni, James A & Miller, John H, 1993. "Rational Cooperation in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(418), pages 570-85, May.
  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  13. Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1341-1378, July.
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Cited by:
  1. Sascha Füllbrunn, 2007. "Collusion or Sniping in simultaneous ascending Auctions," FEMM Working Papers, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management 07025, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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