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Tacit collusion in auctions and conditions for its facilitation and prevention: Equilibrium selection in laboratory experimental markets

Author

Listed:
  • Li, Jin
  • Plott, Charles R.

Abstract

The paper studies bidder behavior in simultaneous, continuous, ascending price auctions. We design and implement a “collusion incubator” environment based on a type of public, symmetrically “folded” and “item‐aligned” preferences. Tacit collusion develops quickly and reliably within the environment. Once tacit collusion developed, it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game‐theoretic model. The only successful remedy was a non‐public change in the preference of participants that destroyed the symmetrically, “folded” and “item aligned” patterns of preferences, creating head‐to‐head competition between two agents reminiscent of the concept of a “maverick.”(JEL L50, L94, D43)
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Suggested Citation

  • Li, Jin & Plott, Charles R., 2005. "Tacit collusion in auctions and conditions for its facilitation and prevention: Equilibrium selection in laboratory experimental markets," Working Papers 1223, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:1223
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    File URL: http://www.hss.caltech.edu/SSPapers/sswp1223.pdf
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    2. Jeannette Brosig-Koch & Werner Güth & Torsten Weiland, 2016. "Comparing the effectiveness of collusion devices in first-price procurement: an auction experiment," Evolutionary and Institutional Economics Review, Springer, vol. 13(2), pages 269-295, December.
    3. Engelmann, Dirk & Müller, Wieland, 2011. "Collusion through price ceilings? In search of a focal-point effect," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 291-302, August.
    4. Kephart, Curtis & Munro, David, 2023. "Market concentration and the responsiveness of prices and mark-ups," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 104(C).
    5. Nan Zhou & Li Zhang & Shijian Li & Zhijian Wang, 2018. "Algorithmic Collusion in Cournot Duopoly Market: Evidence from Experimental Economics," Papers 1802.08061, arXiv.org.
    6. Martin Sefton & Ping Zhang, 2014. "Divisible-good uniform price auctions: The role of allocation rules and communication among bidders," Research in Experimental Economics, in: Sean M. Collins & R. Mark Isaac & Douglas A. Norton (ed.), Experiments in Financial Economics, volume 16, pages 53-86, Emerald Publishing Ltd.
    7. Dolgorsuren Dorj, 2013. "Common-Pool Resources With Free Mobility," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1404-1420, April.
    8. Darai, D. & Roux, C. & Schneider, F., 2019. "Mergers, Mavericks, and Tacit Collusion," Cambridge Working Papers in Economics 1984, Faculty of Economics, University of Cambridge.
    9. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 461-490, July.
    10. Francesco Feri & Anita Gantner & Wolfgang Höchtl & Rupert Sausgruber, 2013. "The pivotal mechanism revisited: some evidence on group manipulation," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 23-51, March.

    More about this item

    Keywords

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    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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