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The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring

Author

Listed:
  • Kei Kawai
  • Jun Nakabayashi
  • Juan M. Ortner

Abstract

We study the inner workings of a bidding cartel focusing on the way in which bidders communicate with one another regarding how each bidder should bid. We show that the designated winner of the cartel can attain higher payoffs by randomizing its bid and keeping it secret from other bidders when defection is a concern. Intuitively, randomization makes defection less attractive as potential defectors face the risk of not winning the auction even if they deviate. We illustrate how our theoretical predictions are borne out in practice by studying a bidding cartel that operated in the town of Kumatori, Japan.

Suggested Citation

  • Kei Kawai & Jun Nakabayashi & Juan M. Ortner, 2021. "The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring," NBER Working Papers 28539, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28539
    Note: IO
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    More about this item

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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