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Collusion and the Choice of Auction: An Experimental Study

Author

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  • Jeroen Hinloopen

    (University of Amsterdam)

  • Sander Onderstal

    (University of Amsterdam)

Abstract

We experimentally examine the collusive properties of two commonly used auctions: the English auction (EN) and the first-price sealed-bid auction (FPSB). In theory, both tacit and overt collusion are always incentive compatible in EN while both can be incentive compatible in FPSB if the auction is repeated and bidders are patient enough. We find that the auctions do not differ in subjects’ propensity to collude overtly and in the likelihood that subjects defect from a collusive agreement. Moreover, the average winning bid does not differ between the auctions unless subjects can collude overtly. Under overt collusion, stable cartels buy at a lower price in EN than in FPSB resulting in a lower average winning bid in EN.

Suggested Citation

  • Jeroen Hinloopen & Sander Onderstal, 2010. "Collusion and the Choice of Auction: An Experimental Study," Tinbergen Institute Discussion Papers 10-120/1, Tinbergen Institute, revised 28 Mar 2013.
    • Handle: RePEc:tin:wpaper:20100120
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    References listed on IDEAS

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    Cited by:

    1. Hinloopen, Jeroen & Onderstal, Sander & Treuren, Leonard, 2020. "Cartel stability in experimental first-price sealed-bid and English auctions," International Journal of Industrial Organization, Elsevier, vol. 71(C).
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    3. Pacharasut Sujarittanonta & Ajalavat Viriyavipart, 2021. "Deterring collusion with a reserve price: an auction experiment," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 536-557, June.
    4. Llorente-Saguer, Aniol & Zultan, Ro’i, 2017. "Collusion and information revelation in auctions," European Economic Review, Elsevier, vol. 95(C), pages 84-102.

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    More about this item

    Keywords

    Collusion; English auction; First-price sealed-bid auction; Laboratory experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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