Inefficiency of Collusion at English Auctions

Giuseppe (Pino) Lopomo, Marshall Robert C. and Leslie Marx
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Marshall Robert C.: Penn State University, rcm10@psu.edu

The B.E. Journal of Theoretical Economics, 2005, vol. 5, issue 1, 28

Abstract: In its attempts to deter and prosecute big rigging, U.S. antitrust authorities have focused on sealed-bid procurements, rather than on ascending-bid auctions. One possible justification for this focus is the idea, supported by the existing theoretical literature, that collusion creates inefficiency at sealed-bid auctions, but not at ascending-bid auctions. We show when there is no pre-auction communication and the collusive mechanism satisfies ex-post budget balance, collusion does affect efficiency. In particular, any collusive mechanism that increases cartel members' expected payoffs relative to non-cooperative play results in inefficiency either in the allocation among cartel members or in the allocation between cartel and non-cartel bidders, or both.

Keywords: antitrust; bid rigging; bidding ring; cartel; ex-post budget balance (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (7)

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DOI: 10.2202/1534-5971.1156

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