Identifying Collusion in English Auctions

Abstract

We develop a fully nonparametric identification framework and a test of collusion in ascending bid auctions. Assuming efficient collusion, we show that the underlying distributions of values can be identified despite collusive behaviour when there is at least one bidder outside the cartel. We propose a nonparametric estimation procedure for the distributions of values and a bootstrap test of the null hypothesis of competitive behaviour against the alternative of collusion. Our framework allows for asymmetric bidders, and the test can be performed on individual bidders. The test is applied to the Guaranteed Investment Certificate auctions conducted by US municipalities over the Internet. Despite the fact that there have been allegations of collusion in this market, our test does not detect deviations from competition. A plausible explanation of this finding is that the Internet auction design involves very limited information disclosure.

Keywords: English auctions, identification, collusion, nonparametric estimation

JEL Classification: C14, C57