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Divisible-good uniform price auctions: the role of allocation rules and communication among bidders

Author Info

Listed author(s):
  • Martin Sefton

    (School of Economics, University of Nottingham)

  • Ping Zhang

    (School of Economics, University of Nottingham)

Abstract

We use laboratory experiments to compare allocation rules in uniform price divisible good auctions. “Standard” and “uniform” allocation rules admit different types of low-price equilibria, which are eliminated by a “hybrid” rule. We observe little evidence of revenue differences among the allocation rules. Under all three allocation rules, prices are competitive when bidders cannot explicitly communicate, and collusive when bidders can explicitly communicate. With explicit communication we find that collusive agreements are more fragile when the gain from a unilateral deviation is larger. We also find that the standard allocation rule is particularly vulnerable to collusive equilibria.

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File URL: http://www.nottingham.ac.uk/cedex/documents/papers/2009-21.pdf
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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2009-21.

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Date of creation: Nov 2009
Handle: RePEc:not:notcdx:2009-21
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Web page: http://www.nottingham.ac.uk/economics/cedex/

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Keywords: experiment; uniform price auction; multi-unit auction; divisible-good auction; allocation rule; communication;

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Find related papers by JEL classification:
  • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
  • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
  • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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  1. Katerina Sherstyuk, 1999. "Collusion Without Conspiracy: An Experimental Study of One-Sided Auctions," Experimental Economics, Springer;Economic Science Association, vol. 2(1), pages 59-75, August.
  2. Dirk Engelmann & Veronika Grimm, 2009. "Bidding Behaviour in Multi-Unit Auctions - An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 855-882, 04.
  3. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 480-493, 04/05.
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  6. Sascha Fullbrunn & Tibor Neugebauer, 2009. "Anonymity deters collusion in hard-close auctions: experimental evidence," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(2), pages 131-148.
  7. Orly Sade & Charles Schnitzlein & Jaime Zender, 2006. "Competition and cooperation in divisible good auctions: An experimental examination," Artefactual Field Experiments 00105, The Field Experiments Website.
  8. Ben Greiner, 2004. "The Online Recruitment System ORSEE 2.0 - A Guide for the Organization of Experiments in Economics," Working Paper Series in Economics 10, University of Cologne, Department of Economics.
  9. Alexander L. Brown & Charles R. Plott & Heidi J. Sullivan, 2009. "Collusion Facilitating And Collusion Breaking Power Of Simultaneous Ascending And Descending Price Auctions," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 395-424, 07.
  10. Dallas Burtraw & Jacob Goeree & Charles A. Holt & Erica Myers & Karen Palmer & William Shobe, 2009. "Collusion in auctions for emission permits: An experimental analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(4), pages 672-691.
  11. Orly Sade & Charles Schnitzlein & Jaime F. Zender, 2006. "Competition and Cooperation in Divisible Good Auctions: An Experimental Examination," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 195-235.
  12. Anthony M. Kwasnica & Katerina Sherstyuk, 2007. "Collusion and Equilibrium Selection in Auctions," Economic Journal, Royal Economic Society, vol. 117(516), pages 120-145, 01.
  13. Ilan Kremer & Kjell G. Nyborg, 2004. "Divisible-Good Auctions: The Role of Allocation Rules," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 147-159, Spring.
  14. 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.
  15. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, vol. 69(2), pages 413-454, March.
  16. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1996. "Collusion in Uniform-Price Auctions: Experimental Evidence and Implications for Treasury Auctions," Review of Financial Studies, Society for Financial Studies, vol. 9(3), pages 757-785.
  17. Ilan Kremer, 2004. "Underpricing and Market Power in Uniform Price Auctions," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 849-877.
  18. Burton, Anthony & Sefton, Martin, 2004. "Risk, pre-play communication and equilibrium," Games and Economic Behavior, Elsevier, vol. 46(1), pages 23-40, January.
  19. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-764.
  20. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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Cited by:

  1. Rosen, Christiane & Madlener, Reinhard, 2013. "An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods," FCN Working Papers 8/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2013.

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