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Maintaining Tacit Collusion in Repeated Ascending Auctions

Listed author(s):
  • Owen R. Phillips
  • Dale J. Menkhaus
Registered author(s):

    In a repeated two-stage game, identical goods are produced and then sold through an ascending auction. Baseline market structures are created in the laboratory with a fixed number of units sold, and either two or four buyers bid as each unit is offered for sale. Bidding rings develop in both auction environments. Three "seller-active" market structures are created in which sellers individually and repeatedly decide how many units to produce and bring to an auction. Auction designs have two or four sellers and two or four buyers. Bidding rings develop in two-buyer markets but falter because sellers reduce production sufficiently to destabilize the ring. Bids rise to the equilibrium at the intersection of supply and demand. Prices are higher when there are four buyers. Sellers can tacitly coordinate through the advance production decision. (c) 2009 by The University of Chicago. All rights reserved.

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    File URL: http://dx.doi.org/10.1086/595673
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    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 52 (2009)
    Issue (Month): 1 (02)
    Pages: 91-109

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    Handle: RePEc:ucp:jlawec:v:52:y:2009:i:1:p:91-109
    Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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    1. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    2. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-538, June.
    3. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei.
    4. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
    5. Anthony M. Kwasnica & Katerina Sherstyuk, 2007. "Collusion and Equilibrium Selection in Auctions," Economic Journal, Royal Economic Society, vol. 117(516), pages 120-145, 01.
    6. Owen R. Phillips & Dale J. Menkhaus & Kalyn T. Coatney, 2003. "Collusive Practices in Repeated English Auctions: Experimental Evidence on Bidding Rings," American Economic Review, American Economic Association, vol. 93(3), pages 965-979, June.
    7. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    8. Nelson, Jon P., 1995. "Market structure and incomplete information: Price formation in a real-world repeated English auction," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 421-437, August.
    9. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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