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Collusion in Repeated Auctions with Costless Communication

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  • Roberto Pinheiro

Abstract

In this paper, we present a model of repeated first-price private value auctions in which the bidders have access to a cheap talk communication mechanism. In this framework, messages allow bidders to transmit their preference rankings over the goods to be auctioned, similar to Pesendorfer (2000). We show that collusion through this static mechanism not only dominates the static bid rotation mechanism presented by McAfee and McMillan (1992), but it is also not strictly dominated by the dynamic bid rotation mechanism presented by Aoyagi (2003). However, we show that asymptotic efficiency of collusion through increasing the number of ordered goods, presented by Pesendorfer (2000), demands patience rates to asymptotically approach one, making collusion increasingly more difficult to sustain. Finally, we study mechanisms through which the auctioneer may try to break bidders' collusion.

Suggested Citation

  • Roberto Pinheiro, 2024. "Collusion in Repeated Auctions with Costless Communication," Working Papers 24-21, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:98920
    DOI: 10.26509/frbc-wp-202421
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    References listed on IDEAS

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    1. Martin Pesendorfer, 2000. "A Study of Collusion in First-Price Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 381-411.
    2. 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.
    3. Steven A. Matthews, 1995. "A Technical Primer on Auction Theory I: Independent Private Values," Discussion Papers 1096, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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