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Joint Bidding in Common Value Auctions: Theory and Evidence

  • Vlad Mares

    (Olin School of Business)

  • Mikhael Shor

    (Owen Graduate School of Management, Vanderbilt University)

We examine theoretically and experimentally two countervailing effects of collusion and symmetric mergers among bidders. On one hand, the pooling of information within bidding rings increases the precision of competing estimates. We demonstrate that, in average value auctions, this leads to more aggressive bidding. On the other hand, since collusion decreases the number of active bidders, competition is lessened, reducing the price paid at auction. We demonstrate that the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized e®ects experimentally by conducting a series of auctions with constant informational content but a varying number of bidders among whom this information is distributed. The experimental results are consistent with our theoretical predictions for different value and auction mechanism specifications.

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Paper provided by EconWPA in its series Game Theory and Information with number 0305001.

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Length: 29 pages
Date of creation: 12 May 2003
Date of revision:
Handle: RePEc:wpa:wuwpga:0305001
Note: Type of Document - Acrobat PDF; prepared on IBM PC - MikTeX; to print on PostScript; pages: 29 ; figures: included
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  1. Han Hong & Matthew Shum, 2001. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Economics Working Paper Archive 447, The Johns Hopkins University,Department of Economics.
  2. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  3. John H. Kagel & Colin M. Campbell & Dan Levin, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 89(1), pages 325-334, March.
  4. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer, vol. 27(3), pages 583-596, 04.
  5. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Ronald Harstad, 2000. "Dominant Strategy Adoption and Bidders' Experience with Pricing Rules," Experimental Economics, Springer, vol. 3(3), pages 261-280, December.
  7. Jacob K. Goeree & Theo Offerman, 1999. "Competitive Bidding in Auctions with Private and Common Values," Virginia Economics Online Papers 337, University of Virginia, Department of Economics.
  8. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  9. Kenneth Hendricks & Joris Pinkse & Robert H. Porter, 2001. "Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions," NBER Working Papers 8294, National Bureau of Economic Research, Inc.
  10. Schweizer, Urs & von Ungern-Sternberg, Thomas, 1983. "Sealed Bid Auctions and the Search for Better Information," Economica, London School of Economics and Political Science, vol. 50(197), pages 79-85, February.
  11. Susan Athey & Jonathan Levin, 1998. "The Value of Information In Monotone Decision Problems," Working papers 98-24, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  13. Paul Klemperer, 1997. "Auctions with Almost Common Values: The Wallet Game and its Applications," Economics Series Working Papers 1998-W03, University of Oxford, Department of Economics.
  14. Dyer, Douglas & Kagel, John H & Levin, Dan, 1989. "A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis," Economic Journal, Royal Economic Society, vol. 99(394), pages 108-15, March.
  15. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November.
  16. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
  17. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-11, May.
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