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Auction cartels and the absence of efficient communication

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  • Seres, Gyula

Abstract

This paper examines the feasibility of collusive mechanisms in single-unit auctions. A model is constructed with private and common value information asymmetry and continuous type space. We show that an incentive compatible bid coordination mechanism (BCM) does not exist if common value uncertainty is present. This result contradicts actual antitrust cases, where common effects or resale opportunities created uncertainty about valuations, but a price-fixing cartel was formed. We solve the puzzle by relaxing the assumption that all bidder types truthfully reveal their private information. The introduced Bayesian bid coordination mechanism (BBCM) exists if the main source of information asymmetry is private value. In that case, a designated ring member can signal high valuation and suppress competition. Our results demonstrate the rationale behind cartel mechanisms with pre-auction knockouts.

Suggested Citation

  • Seres, Gyula, 2017. "Auction cartels and the absence of efficient communication," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 282-306.
    • Handle: RePEc:eee:indorg:v:52:y:2017:i:c:p:282-306
    DOI: 10.1016/j.ijindorg.2017.03.002
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    2. Noussair, Charles N. & Seres, Gyula, 2020. "The effect of collusion on efficiency in experimental auctions," Games and Economic Behavior, Elsevier, vol. 119(C), pages 267-287.
    3. Troyan, Peter, 2017. "Collusion and signaling in auctions with interdependent values," Journal of Economic Theory, Elsevier, vol. 170(C), pages 319-345.

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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