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Inefficiency of Collusion at English Auctions

  • Lopomo Giuseppe

    ()

    (Duke University)

  • Marshall Robert C.

    ()

    (Penn State University)

  • Marx Leslie M

    ()

    (Duke University)

In its attempts to deter and prosecute big rigging, U.S. antitrust authorities have focused on sealed-bid procurements, rather than on ascending-bid auctions. One possible justification for this focus is the idea, supported by the existing theoretical literature, that collusion creates inefficiency at sealed-bid auctions, but not at ascending-bid auctions. We show when there is no pre-auction communication and the collusive mechanism satisfies ex-post budget balance, collusion does affect efficiency. In particular, any collusive mechanism that increases cartel members' expected payoffs relative to non-cooperative play results in inefficiency either in the allocation among cartel members or in the allocation between cartel and non-cartel bidders, or both.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 5 (2005)
Issue (Month): 1 (June)
Pages: 1-28

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Handle: RePEc:bpj:bejtec:v:contributions.5:y:2005:i:1:n:4
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