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Modeling Tacit Collusion in Auctions

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Listed:
  • Andreas Blume
  • Paul Heidhues

Abstract

We study tacit collusion, which we interpret as collusion without communication about strategies, in repeated auctions in which bidders can only observe past winners and not their bids. Strategies cannot discriminate among initially nameless bidders until they have become named through winning an auction. We obtain two classes of results: (1) Completely refraining from using names rules out collusion altogether, and even if naming is permitted, as per our definition of tacit collusion, the lack of communication limits collusive strategies and payoffs among impatient bidders. (2) Sufficiently patient bidders can overcome the attainability constraints imposed by lack of communication and obtain approximately the same collusive gain as absent communication.

Suggested Citation

  • Andreas Blume & Paul Heidhues, 2008. "Modeling Tacit Collusion in Auctions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 163-184, March.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200803)164:1_163:mtcia_2.0.tx_2-y
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    References listed on IDEAS

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    1. Bhaskar, V., 2000. "Egalitarianism and Efficiency in Repeated Symmetric Games," Games and Economic Behavior, Elsevier, vol. 32(2), pages 247-262, August.
    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. Robert Aumann & Adam Brandenburger, 2014. "Epistemic Conditions for Nash Equilibrium," World Scientific Book Chapters,in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 5, pages 113-136 World Scientific Publishing Co. Pte. Ltd..
    4. Blume, Andreas, 2000. "Coordination and Learning with a Partial Language," Journal of Economic Theory, Elsevier, vol. 95(1), pages 1-36, November.
    5. 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.
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    Citations

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    Cited by:

    1. Yuliy Sannikov & Andrzej Skrzypacz, 2007. "Impossibility of Collusion under Imperfect Monitoring with Flexible Production," American Economic Review, American Economic Association, vol. 97(5), pages 1794-1823, December.
    2. Nicolas Gruyer, 2009. "OPTIMAL AUCTIONS WHEN A SELLER IS BOUND TO SELL TO COLLUSIVE BIDDERS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 835-850, December.
    3. Tan, Guofu & Yilankaya, Okan, 2007. "Ratifiability of efficient collusive mechanisms in second-price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 59(2), pages 383-396, May.
    4. Blume, Andreas & Heidhues, Paul, 2006. "Private monitoring in auctions," Journal of Economic Theory, Elsevier, vol. 131(1), pages 179-211, November.
    5. Ulrich Schwalbe, 2008. "Tacit Collusion in Repeated Auctions. Comment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 189-192, March.
    6. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    7. repec:eee:iepoli:v:40:y:2017:i:c:p:48-59 is not listed on IDEAS
    8. Paul Heidhues & Botond Köszegi, 2004. "The Impact of Consumer Loss Aversion on Pricing," CIG Working Papers SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    9. Christoph Engel & Urs Schweizer, 2008. "Editorial Preface," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 1-3, March.
    10. Hu, Audrey & Offerman, Theo & Onderstal, Sander, 2011. "Fighting collusion in auctions: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 84-96, January.
    11. Kuzmics, Christoph & Palfrey, Thomas & Rogers, Brian W., 2014. "Symmetric play in repeated allocation games," Journal of Economic Theory, Elsevier, vol. 154(C), pages 25-67.
    12. Blume, Andreas & Heidhues, Paul & Lafky, Jonathan & Münster, Johannes & Zhang, Meixia, 2009. "All equilibria of the multi-unit Vickrey auction," Games and Economic Behavior, Elsevier, vol. 66(2), pages 729-741, July.
    13. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
    14. Ulrich Kamecke, 2008. "Modeling Tacit Collusion in Auctions. Comment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 185-188, March.
    15. Nicolas Gruyer, 2008. "Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...")," Economics Working Papers 06, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
    16. Che,Y.-K. & Kim,J., 2004. "Collusion-proof implementation of optimal mechanisms," Working papers 4, Wisconsin Madison - Social Systems.
    17. Joseph E. Harrington, Jr, 2005. "Detecting Cartels," Economics Working Paper Archive 526, The Johns Hopkins University,Department of Economics.
    18. Zhiyong Tu & Lan Ju, 2015. "Optimal Ring Size at First-Price Auctions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 609-621, December.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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