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Determining damages from the operation of bidding rings: An analysis of the post-auction `knockout' sale


  • George Deltas

    () (University of Illinois, Urbana-Champaign, 1206 South Sixth Street, Champaign, IL 61820, USA)


This paper studies `knockout' auctions, typically organized by bidding rings, in which the winning bidder makes side-payments to all losing bidders. These side-payments provide an incentive for the ring members to bid higher than they would have in an identical public auction. As a consequence, neither the realized price nor the total payments of the winner are unbiased estimates of the item's price in the absence of collusion. This paper evaluates the extent of this overestimate in the independent private values case, for first and second price post-auction knockouts. Bids are not independent of the sharing rule but transfers from the winning bidder are. Further, bidder payoffs are independent of both the auction format and the sharing rule. The "overbidding" in the knockout is increasing with the dispersion of bidder valuations and of significant empirical relevance. This paper's results can be used to obtain an unbiased assessment of the damages inflicted on the seller.

Suggested Citation

  • George Deltas, 2002. "Determining damages from the operation of bidding rings: An analysis of the post-auction `knockout' sale," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(2), pages 243-269.
  • Handle: RePEc:spr:joecth:v:19:y:2002:i:2:p:243-269 Note: Received: May 1, 1996; revised version: September 7, 2000

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    References listed on IDEAS

    1. Bond, Eric W. & Crocker, Keith J., 1997. "Hardball and the soft touch: The economics of optimal insurance contracts with costly state verification and endogenous monitoring costs," Journal of Public Economics, Elsevier, vol. 63(2), pages 239-264, January.
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    4. Chateauneuf, A. & Cohen, M. & Meilijson, I., 1997. "New Tools to Better Model Behavior Under Risk and UNcertainty: An Oevrview," Papiers d'Economie Mathématique et Applications 97.55, Université Panthéon-Sorbonne (Paris 1).
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    6. Picard, Pierre, 2000. "On the Design of Optimal Insurance Policies under Manipulation of Audit Cost," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 1049-1071, November.
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    Cited by:

    1. Subir Bose & Arup Daripa, 2009. "Optimal sale across venues and auctions with a buy-now option," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 137-168, January.
    2. Emiel Maasland & Sander Onderstal, 2007. "Auctions with Financial Externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 551-574, September.

    More about this item


    Cartels; Collusion; Assessment of damages; Takeovers.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices


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