Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection

35 Pages Posted: 6 Jan 2015

See all articles by Aniol Llorente-Saguer

Aniol Llorente-Saguer

Queen Mary University of London

Ro'i Zultan

Ben-Gurion University of the Negev

Date Written: November 2014

Abstract

The theoretical literature on collusion in auctions suggests that the first-price mechanism can deter the formation of bidding rings. In equilibrium, collusive negotiations are either successful or are avoided altogether, hence such analysis neglects the effects of failed collusion attempts. In such contingencies, information revealed in the negotiation process is likely to affect the bidding behavior in firstprice (but not second-price) auctions. We test experimentally a setup in which collusion is possible, but negotiations often break down and information is revealed in an asymmetric way. The existing theoretical analysis of our setup predicts that the first-price mechanism deters collusion. In contrast, we find the same level of collusion in first-price and second-price auctions. Furthermore, failed collusion attempts distort the bidding behavior in the ensuing auction, leading to loss of efficiency and eliminating the revenue dominance typically observed in first-price auctions.

Keywords: Collusion, experiment, auctions, bribes

JEL Classification: C72, C91, D44

Suggested Citation

Llorente-Saguer, Aniol and Zultan, Ro'i, Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection (November 2014). MPI Collective Goods Preprint, No. 2014/18. Available at SSRN: https://ssrn.com/abstract=2545762 or http://dx.doi.org/10.2139/ssrn.2545762

Aniol Llorente-Saguer (Contact Author)

Queen Mary University of London ( email )

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

HOME PAGE: http://https://sites.google.com/site/aniollls/

Ro'i Zultan

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

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