Spying and Imperfect Commitment in First-Price Auctions: A Case of Tacit Collusion

Economic Theory Bulletin (2023), 11: 255-275

Economic Theory Bulletin (2023), 11: 255-275

37 Pages Posted: 2 Aug 2023 Last revised: 29 Feb 2024

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Byoung Jun

Korea University - Department of Economics

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: May 20, 2023

Abstract

We analyze Stackelberg leadership in a first-price auction. Leadership is induced by an information system, represented by a spy, that leaks one bidder's bid before others choose their bids. However, the leader may secretly revise his bid with some probability; therefore, the leaked bid is only an imperfect signal. Whereas leadership with perfect commitment exclusively benefits the follower, imperfect commitment yields a collusive outcome, even if the likelihood that the leader may revise his bid is arbitrarily small. This collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also payoff dominant.

Keywords: Auctions, collusion, espionage, signaling

JEL Classification: L12, L13, L41, D43, D44

Suggested Citation

Fan, Cuihong and Jun, Byoung H. and Wolfstetter, Elmar G., Spying and Imperfect Commitment in First-Price Auctions: A Case of Tacit Collusion (May 20, 2023). Economic Theory Bulletin (2023), 11: 255-275, Economic Theory Bulletin (2023), 11: 255-275, Available at SSRN: https://ssrn.com/abstract=4528309

Cuihong Fan

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Byoung H. Jun

Korea University - Department of Economics ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea
+82 2 3290 2213 (Phone)
+82 2 926 3601 (Fax)

Elmar G. Wolfstetter (Contact Author)

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
18
Abstract Views
129
PlumX Metrics