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Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions

Author

Listed:
  • Sanna Laksá

    (University of Liverpool)

  • Daniel Marszalec

    (Faculty of Economics, The University of Tokyo)

  • Alexander Teytelboym

    (Department of Economics, St Catherine’s College, and the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford)

Abstract

Auctions with below-bid pricing (e.g., uniform-price, ascending, and Vickrey auctions) have remarkable theoretical properties, but practitioners are skeptical about their implementation. We present a dynamic model of collusion in multiunit auctions that explains this gap between theory and practice. To sustain collusion at the reserve price, bidders submit crank-handle bids. The cost of sustaining crank-handle collusion depends on the degree of below-bid pricing in the auction. Our model predicts that crank-handle collusion is easier to sustain in auctions with more below-bid pricing and when bidders are more symmetric. Evidence from uniform-price, ascending, and pay-as-bid auctions of fishing quota in the Faroe Islands is in line with our predictions.

Suggested Citation

  • Sanna Laksá & Daniel Marszalec & Alexander Teytelboym, 2018. "Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions," CIRJE F-Series CIRJE-F-1096, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2018cf1096
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    References listed on IDEAS

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    Cited by:

    1. Alexander Teytelboym, 2019. "Natural capital market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(1), pages 138-161.

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