Tacit collusion in repeated auctions

"The authors study tacit collusion in repeated auctions in which bidders can only observe past winners and not their bids. They adopt a stringent interpretation of tacit collusion as collusion without communication about strategies that we model as a symmetry restriction on repeated game strategies: Strategies cannot discriminate among initially nameless bidders until they have become named through winning an auction. The authors obtain three classes of results: 1. Completely refraining from using names, i.e. strengthening the symmetry constraint, rules out collusion altogether, and even if naming is permitted, as per our definition of tacit collusion, the lack of communication limits collusive strategies and payoffs among impatient bidders. 2. If communication is allowed, there are sustained improvements over bid rotation and competitive bidding among patient bidders. 3. These gains extend to tacit collusion among patient bidders. However, whether tacit or not, collusion need not be efficient." (author's abstract)"Der Beitrag untersucht die Möglichkeiten von 'tacit collusion' (stillschweigender Kollusion) in wiederholten Auktionsspielen in welchen nur die vergangenen Gewinner nicht aber deren Gebote bekannt sind. Dabei wird 'tacit collusion' als kollusives Verhalten ohne Absprachen zwischen den Bietern interpretiert. In dem Artikel werden insbesondere auch vor dem Spiel getroffene Absprachen über Strategien ausgeschlossen. Das Fehlen solcher Absprachen wird durch Symmetrierestriktionen modelliert: Strategien können solange nicht zwischen anfangs 'namenlosen' Bietern unterscheiden, bis diese sich durch das Gewinnen einer Auktion von den anderen Bietern differenzieren. Es werden drei Arten von Ergebnissen hergeleitet: 1. Stärkt man die Symmetrierestriktionen und verlangt symmetrisches Verhalten in jeder Periode, so kann keine Kollusion auftretten. Aber auch weniger starke Symmetrierestriktionen, die prinzipiell eine endogene Rollenverteilung ermöglichen, schränken die möglichen Kollusionsgewinne bei ungeduldigen Bietern ein. 2. Erlaubt man vor dem Spiel getroffene Absprachen über die Strategiewahl, so können hinreichend geduldige Bieter unbegrenzt höhere Gewinne erhalten als die Gewinnne bei wiederholtem Konkurrenzverhalten oder bei einer einfachen Bieterrotation. 3. Dies gilt auch für Kollusion ohne Absprachen falls die Bieter hinreichend geduldig sind. Jedoch, ob mit oder ohne a-priori Absprachen, effiziente Kollusion kann selbst bei extrem geduldigen Bietern unmöglich sein." (Autorenreferat

Tacit Collusion in Repeated Auctions

We study tacit collusion in repeated auctions in which bidders can only observe pastwinners and not their bids. We adopt a stringent interpretation of tacit collusion ascollusion without communication about strategies that we model as a symmetryrestriction on repeated game strategies: Strategies cannot discriminate among initiallynameless bidders until they have become named through winning an auction. We obtainthree classes of results: (1) Completely refraining from using names, i.e. strengtheningthe symmetry constraint, rules out collusion altogether, and even if naming is permitted,as per our definition of tacit collusion, the lack of communication limits collusivestrategies and payoffs among impatient bidders. (2) If communication is allowed, thereare sustained improvements over bid rotation and competitive bidding among patientbidders. (3) These gains extend to tacit collusion among patient bidders. However,whether tacit or not, collusion need not be efficient. ZUSAMMENFASSUNG - (Stillschweigende Kollusion in wiederholten Auktionen) Der Beitrag untersucht die Möglichkeiten von "tacit collusion" (stillschweigender Kollusion) in wiederholten Auktionsspielen in welchen nur die vergangenen Gewinner nicht aber deren Gebote bekannt sind. Dabei wird "tacit collusion" als kollusives Verhalten ohne Absprachen zwischen den Bietern interpretiert. In dem Artikel werden insbesondere auch vor dem Spiel getroffene Absprachen über Strategien ausgeschlossen. Das Fehlen solcher Absprachen wird durch Symmetrierestriktionen modelliert: Strategien können solange nicht zwischen anfangs "namenlosen" Bietern unterscheiden, bis diese sich durch das Gewinnen einer Auktion von den anderen Bietern differenzieren. Es werden drei Arten von Ergebnissen hergeleitet: (1) Stärkt man die Symmetrierestriktionen und verlangt symmetrisches Verhalten in jeder Periode, so kann keine Kollusion auftreten. Aber auch weniger starke Symmetrierestriktionen, die prinzipiell eine endogene Rollenverteilung ermöglichen, schränken die möglichen Kollusionsgewinne bei ungeduldigen Bietern ein. (2) Erlaubt man vor dem Spiel getroffene Absprachen über die Strategiewahl, so können hinreichend geduldige Bieter unbegrenzt höhere Gewinne erhalten als die Gewinne bei wiederholtem Konkurrenzverhalten oder bei einer einfachen Bieterrotation. (3) Dies gilt auch für Kollusion ohne Absprachen falls die Bieter hinreichend geduldig sind. Jedoch, ob mit oder ohne a-priori Absprachen, effiziente Kollusion kann selbst bei extrem geduldigen Bietern unmöglich sein.Tacit Collusion, Auctions, Supergames, Strategic Uncertainty, Language, Attainability

Bidding Rings in Repeated Auctions.

This paper considers the question of tacit collusion in repeated auctions with independent private values. McAfee and McMillan show that the extent of collusion is limited by the availability of transfers. If no transfers are possible, the private information of bidders precludes any collusive scheme beyond bid rotation (BRS), even when the cartel has unlimited enforcement.AUCTIONS ; UNCERTAINTY ; BIDDING

Tacit Collusion in Repeated Auctions: Uniform versus Discriminatory

This is the accepted version of the following article: Fabra, N. (2003), Tacit Collusion in Repeated Auctions: Uniform Versus Discriminatory. The Journal of Industrial Economics, 51(3), 271–293, which has been published in final form at: http://dx.doi.org/10.1111/1467-6451.00201Within an infinitely repeated game, I compare the level and conduct of collusion under uniform and discriminatory auctions. For this purpose, I characterize the optimal collusive schemes and sets of sustainable profits under these auction formats. I show that uniform auctions facilitate collusion more than discriminatory auctions: the optimal penal code is equally severe under the two formats; but bidders’ deviation incentives are weaker in uniform auctions given that the payoff irrelevant bids can be used to relax the enforcement problem. This discussion is particularly relevant after the recent reforms in the electricity industry in England & Wales, and elsewhere.Publicad

Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions

This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factor above which the perfectly collusive outcome with equal sharing is sustainable on a stationary path. Under the Market Clearing Price rule, only one step is required. That is, within the class of step bidding functions with a finite number of steps, maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.Auction; Capacity; Collusion; Electricity Market; Supply Function

Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions

This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this out-come. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factorAuction, Capacity, Collusion, Electricity Market, Supply Function

Collusion and the choice of auction: an experimental study

We experimentally examine the collusive properties of two commonly used auctions: the English auction (EN) and the first-price sealed-bid auction (FPSB). In theory, both tacit and overt collusion are always incentive compatible in EN while both can be incentive compatible in FPSB if the auction is repeated and bidders are patient enough. We find that the auctions do not differ in subjects’ propensity to collude overtly and in the likelihood that subjects defect from a collusive agreement. Moreover, the average winning bid does not differ between the auctions unless subjects can collude overtly. Under overt collusion, stable cartels buy at a lower price in EN than in FPSB resulting in a lower average winning bid in EN

Tacit collusion and capacity withholding in repeated uniform price auctions

This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this out-come. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount facto

An experimental investigation of collusion in hard-close auctions: partners and friends

We study collusion in the finitely repeated, hard-close auction experiment. Three subjects, identified by their bidder name, simultaneously compete in three auction markets. Due to the experimental design, subjects are enabled to the sharing of the benefits of cooperation by coordinating their individual demands. Similar collusive behavior has been suggested to play an important role in empirical markets (Klemperer 2002). We consider two treatments. In the first one, the partners treatment, subjects who are identified by bidder-names interact repeatedly but anonymously with each other. In the second one, the friends treatment, groups of three subjects who participate together in the experiment, interact repeatedly with another. In the experiment, we do not observe tacit collusion in the partners treatment; the outcome is efficient and prices converge quickly to the rational equilibrium prediction. Only in the friends treatment, cooperation gains can be realized, but much less cooperation is observed than one would imagine. We conclude that in the laboratory, cooperation is difficult to achieve in the hard-close auction market if anonymity prevails.multi unit auctions, collusion, experimental economics

Virtual Capacity and Competition

In several European merger cases competition authorities have demanded that the merging firm auctions off virtual capacity. The buyer of virtual capacity receives an option on an amount of output at a pre-specified price, typically equal to marginal cost. This output is sold in the market in competition with the merging firm. The paper compares sale of physical and virtual capacity by the merging firm and shows that virtual capacity leads to a less competitive outcome. The merging firm can build up a reputation for producing little, so that the output price increases in the market, and this increases the auction price on virtual capacity.virtual capacity, reputation, tacit collusion, antitrust, mergers, competition policy