Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions

Sanna Laksá, Daniel Marszalec and Alexander Teytelboym
Additional contact information
Sanna Laksá: University of Liverpool

No CIRJE-F-1096, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Auctions with below-bid pricing (e.g., uniform-price, ascending, and Vickrey auctions) have remarkable theoretical properties, but practitioners are skeptical about their implementation. We present a dynamic model of collusion in multiunit auctions that explains this gap between theory and practice. To sustain collusion at the reserve price, bidders submit crank-handle bids. The cost of sustaining crank-handle collusion depends on the degree of below-bid pricing in the auction. Our model predicts that crank-handle collusion is easier to sustain in auctions with more below-bid pricing and when bidders are more symmetric. Evidence from uniform-price, ascending, and pay-as-bid auctions of fishing quota in the Faroe Islands is in line with our predictions.

Pages: 49 pages
Date: 2018-10
New Economics Papers: this item is included in nep-des, nep-exp, nep-gth and nep-mic
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2018cf1096

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