Tacit Collusion in Auctions and Conditions for its Facilitation and Prevention: Equilibrium Selection in Laboratory Experimental Markets

24 Pages Posted: 8 Oct 2009

See all articles by Jin Li

Jin Li

Northwestern University - Department of Management & Strategy

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Abstract

The paper studies bidder behavior in simultaneous, continuous, ascending price auctions. We design and implement a “collusion incubator” environment based on a type of public, symmetrically “folded” and “item-aligned” preferences. Tacit collusion develops quickly and reliably within the environment. Once tacit collusion developed, it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game-theoretic model. The only successful remedy was a non-public change in the preference of participants that destroyed the symmetrically, “folded” and “item aligned” patterns of preferences, creating head-to-head competition between two agents reminiscent of the concept of a “maverick.”

JEL Classification: L50, L94, D43

Suggested Citation

Li, Jin and Plott, Charles R., Tacit Collusion in Auctions and Conditions for its Facilitation and Prevention: Equilibrium Selection in Laboratory Experimental Markets. Economic Inquiry, Vol. 47, No. 3, pp. 425-448, July 2009. Available at SSRN: https://ssrn.com/abstract=1484230 or http://dx.doi.org/10.1111/j.1465-7295.2008.00152.x

Jin Li

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)

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