The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring

26 Pages Posted: 8 Mar 2021 Last revised: 25 Jun 2021

See all articles by Kei Kawai

Kei Kawai

University of California at Berkeley

Jun Nakabayashi

Kindai University

Juan Ortner

Boston University

Date Written: March 2021

Abstract

We study the inner workings of a bidding cartel focusing on the way in which bidders communicate with one another regarding how each bidder should bid. We show that the designated winner of the cartel can attain higher payoffs by randomizing its bid and keeping it secret from other bidders when defection is a concern. Intuitively, randomization makes defection less attractive as potential defectors face the risk of not winning the auction even if they deviate. We illustrate how our theoretical predictions are borne out in practice by studying a bidding cartel that operated in the town of Kumatori, Japan.

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Suggested Citation

Kawai, Kei and Nakabayashi, Jun and Ortner, Juan, The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring (March 2021). NBER Working Paper No. w28539, Available at SSRN: https://ssrn.com/abstract=3799830

Kei Kawai (Contact Author)

University of California at Berkeley ( email )

Berkeley, CA 94720
United States

Jun Nakabayashi

Kindai University ( email )

Kowakae 3-4-1
Higashiosaka, Osaka 522-8502
Japan

Juan Ortner

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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