The effect of collusion on efficiency in experimental auctions

Charles Noussair and Gyula Seres

Games and Economic Behavior, 2020, vol. 119, issue C, 267-287

Abstract: This paper examines the effect of collusion on allocative efficiency in a second-price sealed-bid auction, in which bidders' valuations have both private and common value components. We present a theoretical model which shows that explicit collusion improves average efficiency. Furthermore, a reduction in common value signal variance increases the efficiency of allocations when a cartel is present. We test for the presence of these patterns in a laboratory experiment. Subjects can choose whether to compete or to form a cartel. Colluding bidders can communicate and make side payments using a knockout auction. Our results show that a large majority of bidders joins a cartel and collusion has a negative impact on efficiency.

Keywords: Auction; Bidding ring; Information asymmetry; Experiment (search for similar items in EconPapers)
JEL-codes: C92 D44 D82 L41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:119:y:2020:i:c:p:267-287

DOI: 10.1016/j.geb.2019.11.002

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