Auction cartels and the absence of efficient communication

Gyula Seres

International Journal of Industrial Organization, 2017, vol. 52, issue C, 282-306

Abstract: This paper examines the feasibility of collusive mechanisms in single-unit auctions. A model is constructed with private and common value information asymmetry and continuous type space. We show that an incentive compatible bid coordination mechanism (BCM) does not exist if common value uncertainty is present. This result contradicts actual antitrust cases, where common effects or resale opportunities created uncertainty about valuations, but a price-fixing cartel was formed. We solve the puzzle by relaxing the assumption that all bidder types truthfully reveal their private information. The introduced Bayesian bid coordination mechanism (BBCM) exists if the main source of information asymmetry is private value. In that case, a designated ring member can signal high valuation and suppress competition. Our results demonstrate the rationale behind cartel mechanisms with pre-auction knockouts.

Keywords: Auction; Bidding ring; Cartel; Information asymmetry (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 H57 L40 L41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:52:y:2017:i:c:p:282-306

DOI: 10.1016/j.ijindorg.2017.03.002

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