Strategic Leaks in First-Price Auctions and Tacit Collusion: The Case of Spying and Counter-Spying

16 Pages Posted: 23 Apr 2021

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Byoung Jun

Korea University

Elmar G. Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2021

Abstract

We analyze strategic leaks due to spying out a rival’s bid in a first-price auction. Such leaks induce sequential bidding, complicated by the fact that the spy may be a counterspy who serves the interests of the spied at bidder and reports strategically distorted information. This ambiguity about the type of spy gives rise to a non-standard signaling problem where both sender and receiver of messages have private information and the sender has a chance to make an unobserved move. Whereas spying without counterspy exclusively benefits the spying bidder, the potential presence of a counterspy yields a collusive outcome, even if the likelihood that the spy is a counterspy is arbitrarily small. That collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also the payoff dominant equilibrium.

JEL Classification: L120, L130, L410, D430, D440, D820

Suggested Citation

Fan, Cuihong and Jun, Byoung and Wolfstetter, Elmar G., Strategic Leaks in First-Price Auctions and Tacit Collusion: The Case of Spying and Counter-Spying (2021). CESifo Working Paper No. 9021, Available at SSRN: https://ssrn.com/abstract=3832476 or http://dx.doi.org/10.2139/ssrn.3832476

Cuihong Fan (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Byoung Jun

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Elmar G. Wolfstetter

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://sites.google.com/view/wolfstetter/home

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
39
Abstract Views
311
PlumX Metrics