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Collusion via Signaling in Multiple Object Auctions with Complementarities- An Experimental Test

  • Anthony M. Kwasnica

    (Department of Management Science and Information Systems,P ennsylvania State University,)

  • Katerina Sherstyuk

    (Department of Economics, University of Hawaii at Manoa)

We experimentally study bidder collusion in open ascending auctions for multiple objects. The project is based on the theoretical results by Brusco and Lopomo (1999), who give theoretical support for the following claims: (1) simultaneous ascending bid auctions can be vulnerable to collusion in the multi-object case; (2) The sole presence of complementarities does not hinder collusion; (3) Collusion is a “lown umbers” phenomenon. We focus on a simultaneous ascending auction for two objects. Several experimental treatments are considered: markets with low numbers (2 bidders) and high numbers (5 bidders), no complementarities (additive values) and complementarities (superadditive values). Experimental results are largely consistent with the theory. Collusion is often observed in two-person markets with or without complementarities. Previous experience under the same treatment greatly facilitates bidder collusion. There is no evidence of collusion in five-person markets. We further study collusive strategies adopted by bidders in two-person markets. While most strategies make extensive use of signaling, in the presence of complementarities, bidders use collusive strategies that are supported only by repeated play.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_01-2.pdf
File Function: First version, 2001
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Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200102.

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Length: 45 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:hai:wpaper:200102
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  1. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-52, May.
  2. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 461-490, 07.
  3. Feinstein, Jonathan S & Block, Michael K & Nold, Frederick C, 1985. "Asymmetric Information and Collusive Behavior in Auction Markets," American Economic Review, American Economic Association, vol. 75(3), pages 441-60, June.
  4. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  5. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  6. Sherstyuk, K., 1998. "Collusion without Conspiracy: An Experimental Study of One-Sided Auctions," Department of Economics - Working Papers Series 610, The University of Melbourne.
  7. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-99, June.
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Kwasnica, Anthony M., 2000. "The choice of cooperative strategies in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 323-346, July.
  9. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
  10. Isaac, R. Mark & Ramey, Valerie & Williams, Arlington W., 1984. "The effects of market organization on conspiracies in restraint of trade," Journal of Economic Behavior & Organization, Elsevier, vol. 5(2), pages 191-222, June.
  11. Robert H. Porter & J. Douglas Zona, 1992. "Detection of Bid Rigging in Procurement Auctions," NBER Working Papers 4013, National Bureau of Economic Research, Inc.
  12. Milgrom, Paul, 1998. "Game theory and the spectrum auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 771-778, May.
  13. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
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