Pre-play communication in procurement auctions: Silence is not golden
Journal of Mathematical Economics, 2017, vol. 71, issue C, 1-13
I study the effect of cheap talk between bidders on the outcome of a first-price procurement auction in which participation is costly. Although no side payments or commitments are allowed, there exists a family of equilibria in which sellers use communication to collude on a subset of participants and/or reveal information about their cost. Cheap talk matters in the sense that it strictly enlarges the set of Nash equilibria (symmetric and asymmetric) and the set of public correlated equilibria of the game. I show that the buyer may benefit from cheap talk between sellers and that the surplus increases in the amount of information revealed in equilibrium under one fairly general condition. This is because when communication is cheap, sellers cannot directly collude on higher prices. Rather, communication leads to competition between fewer, but more aggressive bidders, which entails greater allocative efficiency and a decrease in the total wasteful entry cost.
Keywords: Cheap talk; Procurement auction; Collusion (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:71:y:2017:i:c:p:1-13
Access Statistics for this article
Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii
More articles in Journal of Mathematical Economics from Elsevier
Series data maintained by Dana Niculescu ().