Collusion and Equilibrium Selection in Auctions

26 Pages Posted: 19 Jan 2007

See all articles by Anthony M. Kwasnica

Anthony M. Kwasnica

Smeal College of Business

Katerina Sherstyuk

University of Hawaii - Department of Economics

Abstract

We study bidder collusion and test the power of payoff dominance as an equilibrium selection principle in experimental multi-object ascending auctions. In these institutions low-price collusive equilibria exist along with competitive payoff-inferior equilibria. Achieving payoff-superior collusive outcomes requires complex strategies that, depending on the environment, may involve signalling, market splitting, and bid rotation. We provide the first systematic evidence of successful bidder collusion in such complex environments without communication. The results demonstrate that in repeated settings bidders are often able to coordinate on payoff-superior outcomes, with the choice of collusive strategies varying systematically with the environment.

Suggested Citation

Kwasnica, Anthony Mark and Sherstyuk, Katerina, Collusion and Equilibrium Selection in Auctions. Economic Journal, Vol. 117, No. 516, pp. 120-145, January 2007. Available at SSRN: https://ssrn.com/abstract=958119 or http://dx.doi.org/10.1111/j.1468-0297.2007.02004.x

Anthony Mark Kwasnica (Contact Author)

Smeal College of Business ( email )

Department of Risk Management
332 Business Building
University Park, PA 16802-3306
United States

Katerina Sherstyuk

University of Hawaii - Department of Economics ( email )

Honolulu, HI 96822
United States
808-956-7851 (Phone)

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