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Tacit collusion in repeated auctions

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  • Skrzypacz, Andrzej
  • Hopenhayn, Hugo

Abstract

This paper considers the question of tacit collusion in repeated auctions with independent private values and with limited public monitoring. McAfee and McMillan show that the extent of collusion is tied to availability of transfers. Monetary transfers allow cartels to extract full surplus. A folk theorem proved by Fudenberg at al. shows that transfers of future payoffs are almost as good if players are patient and communicate before auctions. We ask how the scope of collusion is affected if players dispense with explicit communication. Collusion better than bid rotation is still feasible, but full surplus cannot be extracted. This constraint becomes less severe with more players and large cartels can become asymptotically efficient even with very limited monitoring. (This paper is a revised version of our paper "Bidding Rings in Repeated Auctions", Rochester Center for Economic Research Working Paper No. 463 (1999).)
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  • Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
  • Handle: RePEc:eee:jetheo:v:114:y:2004:i:1:p:153-169
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    1. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
    2. Athey, Susan & Bagwell, Kyle, 2001. "Optimal Collusion with Private Information," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 428-465, Autumn.
    3. Drew Fudenberg & David Levine & Eric Maskin, 2008. "The Folk Theorem With Imperfect Public Information," World Scientific Book Chapters,in: A Long-Run Collaboration On Long-Run Games, chapter 12, pages 231-273 World Scientific Publishing Co. Pte. Ltd..
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      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    8. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    9. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1990. "Toward a Theory of Discounted Repeated Games with Imperfect Monitoring," Econometrica, Econometric Society, vol. 58(5), pages 1041-1063, September.
    10. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
    11. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
    12. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
    13. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
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