Strategic Leaks in First-Price Auctions and Tacit Collusion: The Case of Spying and Counter-Spying

Cuihong Fan, Byoung Heon Jun and Elmar Wolfstetter

No 9021, CESifo Working Paper Series from CESifo

Abstract: We analyze strategic leaks due to spying out a rival’s bid in a first-price auction. Such leaks induce sequential bidding, complicated by the fact that the spy may be a counterspy who serves the interests of the spied at bidder and reports strategically distorted information. This ambiguity about the type of spy gives rise to a non-standard signaling problem where both sender and receiver of messages have private information and the sender has a chance to make an unobserved move. Whereas spying without counterspy exclusively benefits the spying bidder, the potential presence of a counterspy yields a collusive outcome, even if the likelihood that the spy is a counterspy is arbitrarily small. That collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also the payoff dominant equilibrium.

Keywords: auctions; tacit collusion; espionage; second-mover advantage; signaling; incomplete information (search for similar items in EconPapers)
JEL-codes: D43 D44 D82 L12 L13 L41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-des, nep-gth, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9021

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