Collusion and Equilibrium Selection in Auctions

Abstract

We study bidder collusion and test the power of payoff dominance as an equilibrium selection principle in experimental multi-object ascending auctions. In these institutions low-price collusive equilibria exist along with competitive payoff-inferior equilibria. Achieving payoff-superior collusive outcomes requires complex strategies that, depending on the environment, may involve signalling, market splitting, and bid rotation. We provide the first systematic evidence of successful bidder collusion in such complex environments without communication. The results demonstrate that in repeated settings bidders are often able to coordinate on payoff-superior outcomes, with the choice of collusive strategies varying systematically with the environment. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

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

“…In general, collusive bidding is rarely observed in experimental uniform price sealed bid auctions. 3 The evidence suggests collusion is only achievable if there are two bidders (Sherstyuk (2008); Kwasnica and Sherstyuk (2007)), subjects have a coordination device (Brown, Plott and Sullivan, 2009;Li and Plott, 2009), anonymity is abandoned (Füllbrunn and Neugebauer, 2007), auctions are open format (Goeree, Offerman and Sloof (2006), Burtraw et al (forthcoming)), or bidders are allowed to communicate prior to bidding (Goswami, Noe and Rebello, 1996).…”

“…For example, Burton and Sefton (2004) find that communication via decisions helps subjects coordinate on an efficient, but risky, equilibrium. In experimental multi-unit ascending auctions with private values Kwasnica and Sherstyuk (2007) find that repeated play allows subjects to signal and retaliate, fostering collusion. 5 On the other hand, one might expect less collusion in C6 than C3.…”

Measuring the Efficiency of an FCC Spectrum Auction

“…We referred to both bidding anecdotes in the C-block and previous, non-structural 25 In related experiments, Kwasnica and Sherstyuk (2007) conduct experiments with the simultaneous ascending auction. They find that bidders are able to collectively select equilibria that share many of the features of the Brusco and Lopomo (2002) and Engelbrecht-Wiggans and Kahn (2005) equilibria. empirical work by other authors on other FCC spectrum auctions.…”

Collusion or Sniping in Simultaneous Ascending Auctions — A Prisoner's Dilemma

“…We show that in hard close auctions collusive behavior is dominated by a sniping a Contrary to BL, we focus on no complementarities cases. b Kwasnica and Sherstyuk [2007] test this theoretical consideration experimentally and conclude that "outcomes of these auctions, when classified as collusive, often match the above-mentioned signaling model quite well". strategy, i.e.…”