Collusion in Multiple Object Simultaneous Auctions: Theory and Experiments

Anthony M. Kwasnica

No 1010, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

Abstract: The choice of strategies by bidders who are allowed to communicate in auctions is studied. Using the tools of mechanism design, the possible outcomes of communication between bidders participating in a series of simultaneous first-price auctions are investigated. A variety of mechanisms are incentive compatible when side payments are not allowed. When attention is restricted to mechanisms that rely only on bidders' ordinal ranking of markets, incentive compatibility ischaracterized and the ranking mechanism of Pesendorfer (1996) is interim incentive efficient. Laboratory experiments were completed to investigate the existence, stability, and effect on bidder and seller surplus of cooperative agreements in multiple object simultaneous first-price auctions. Collusive agreements stable in the laboratory. The choices of the experimental subjects often closely match the choices predicted by the ranking and serial dictator mechanisms presented earlier. However, a few notable exceptions raise interesting prospects for the theoretical development of models of cooperative behavior.

Pages: 58 pages
Date: 1998-03
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