TACIT COLLUSION IN AUCTIONS AND CONDITIONS FOR ITS FACILITATION AND PREVENTION: EQUILIBRIUM SELECTION IN LABORATORY EXPERIMENTAL MARKETS

The paper studies bidder behavior in simultaneous, continuous, ascending price auctions. We design and implement a "collusion incubator" environment based on a type of public, symmetrically "folded" and "item-aligned" preferences. Tacit collusion develops quickly and reliably within the environment. Once tacit collusion developed, it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game-theoretic model. The only successful remedy was a non-public change in the preference of participants that destroyed the symmetrically, "folded" and "item aligned" patterns of preferences, creating head-to-head competition between two agents reminiscent of the concept of a "maverick." ( JEL L50, L94, D43)     

CAPACITY CONSTRAINTS AND INFORMATION REVELATION IN PROCUREMENT AUCTIONS

We utilize laboratory experiments to study behavior in sequential procurement auctions where winning an auction round increases a bidder's future costs. The game admits competitive as well as bid‐rotation style collusive equilibria. We find that (a) bidders show some propensity to account for the opportunity cost of winning an auction, but underestimate its magnitude; (b) revealing all bids (instead of only the winning bid) after each round leads to dramatically higher procurement costs. The rise in procurement costs is accompanied by an increase in very high (extreme) bids, a fraction of which appear to be collusive in nature. (JEL C91, D44, L44)     

AUCTIONS WITH RESALE OPPORTUNITIES: AN EXPERIMENTAL STUDY

We study first price asymmetric private value auctions with resale opportunities presented in seller's and buyer's markets. We offer experimental evidence on bidding behavior, prices, and resource allocation. Building upon the Hafalir and Krishna (2008) model, we find that bidders will bid higher in an auction if the resale market is a seller's market than a buyer's market. There is a price/revenue‐efficiency trade‐off established theoretically between these two resale regimes. In equilibrium, however, final efficiency is high irrespective of the resale market structure. Evidence of bid symmetrization and higher final efficiency is found in the buyer‐advantaged resale case. (JEL D44, C92)     

POTENTIAL COMPETITION AND POSSIBLE COLLUSION IN FOREST SERVICE TIMBER AUCTIONS

Potential competition significantly affects the size of winning bids in Forest Service sealed-bid timber auctions and has little effect on winning bids in oral auctions. Winning sealed bids depend even more, however, on actual competition, a result suggesting collusion. This explanation is supported using an index representing the likelihood an auction was rigged. Preclusive bidding (a type of collusion) in oral auctions is indicated by a positive relationship between hauling distances and the size of winning sealed bids. Comparisons of winning-bid variances, overbids, and numbers of bidders across auction type support this explanation of oral auction prices.     

COLLUSION FACILITATING AND COLLUSION BREAKING POWER OF SIMULTANEOUS ASCENDING AND DESCENDING PRICE AUCTIONS

This article demonstrates that a robust tacit collusion evolves quickly in a "collusion incubator" environment but is destroyed by the simultaneous descending price auction. Theories of collusion-producing behavior, along with the detail of the states on which strategies are conditioned, lead to a deeper understanding of how tacit collusion evolves and its necessary conditions. These theories explain how the descending price auction destroys the collusion. The experiments proceed by conducting simultaneous ascending price auctions in the collusion incubator. Then, once the tacit collusion developed, changing to the descending auction. The change moved prices from collusive levels to near-competitive levels. ( JEL C71, C92, D43, D44)     

PROCUREMENT AUCTIONS WITH RENEGOTIATION AND WEALTH CONSTRAINTS

Renegotiation is a common practice in procurement auctions which allows for postauction price adjustments and is nominally intended to deal with the problem that sellers might underestimate the eventual costs of a project during the auction. Using a combination of theory and experiments, we examine the effectiveness of renegotiation at solving this problem. Our findings demonstrate that renegotiation is rarely successful at solving the problem of sellers misestimating costs. The primary effect of allowing renegotiation is that it advantages sellers who possess a credible commitment of default should they have underbid the project. Renegotiation allows these weaker types of sellers to win more often and it also allows them to leverage their commitment of default into higher prices in renegotiation from a buyer. (JEL C91, D44, D82)     

THE EFFECTS OF MARKET PRACTICES IN OLIGOPOLISTIC MARKETS: AN EXPERIMENTAL EXAMINATION OF THE ETHYL CASE

This study reports on the performance of experimental markets characterized by industrial structure and practices similar to those at issue in the Ethyl case. The central question is whether price competition is affected by the practices of advanced notification of price changes and "most-favored nation" contracts or is determined by industrial organization and concentration alone.     

THE HAYEK HYPOTHESIS IN EXPERIMENTAL AUCTIONS: INSTITUTIONAL EFFECTS AND MARKET POWER

We report twelve market experiments utilizing a "seller market power" supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply. The data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market; however, prices generally occur above the competitive equilibrium prediction. Market power in the form of strategic supply withholding does not appear to be responsible for the supra-competitive prices.     

AN EXPERIMENT ON INNOVATION AND COLLUSION

This paper examines the relationship between product innovation and the success of price collusion using novel laboratory experiments. Average market prices in low innovation (LO) experiments are significantly higher than those in high innovation, but otherwise identical experiments. This price difference is attributed to LO experimental subjects' greater common market experience. The data illustrate how collusion can be perceived as the “only way to make it” in LO markets where product innovation is not a viable strategy for increasing profits. They suggest that product homogeneity can be a proximate cause, and product innovation an ultimate cause, of collusion. (JEL L41, L10, C92)     

RISK AVERSION AND OVERBIDDING IN FIRST PRICE SEALED BID AUCTIONS: NEW EXPERIMENTAL EVIDENCE

Bidding above the risk‐neutral Nash equilibrium in first price sealed bid auctions has traditionally been ascribed to risk aversion. Later studies, however, offer other explanations and even argue that risk aversion plays no or a minor role. In a novel experimental design, we directly test the relationship between risk aversion and overbidding by systematically varying the distribution of risk attitudes in auction markets. We find a significant relationship between our measure of risk aversion and overbidding. (JEL D44, C91)     

EXPERIMENTAL COMPARISONS OF AUCTIONS UNDER SINGLE-AND MULTI-UNIT DEMAND

An English clock auction and a sealed-bid auction with lowest accepted-bid pricing are studied in a controlled laboratory setting. Buyers bid for either a single unit or two units of the good. The sealed-bid auction generates more revenue than the English clock auction in both cases. The revenue from the English clock auction is lower in the two-unit demand environment than in the single-unit demand environment, due to strategic demand reduction on the part of bidders. (JEL C92, D44)     

AN EXPERIMENTAL EXAMINATION OF FISHERIES WITH CONCURRENT COMMON POOL AND INDIVIDUAL QUOTA MANAGEMENT

An emerging trend in fisheries management allows different groups of harvesters pursuing the same stock, even under the same management plan, to manage their effort using different rules, so long as each group remains within its “catch share” portion of mortality. Thus harvesters in a single fishery, with a single total allowable catch, concurrently must respond strategically to the behavior not only of those being managed as they are but also of those facing incentives of different management. In a novel quasi‐continuous time experimental environment with a contemporaneous price externality, we explore the effort timing behavior of harvesters managed under common pool (CP) management with that of subjects managed with individual quotas (IQ). Consistent with Nash equilibrium, CP‐managed subjects race‐to‐fish, exerting high levels of effort to secure landings but selling at correspondingly low prices. IQ‐managed subjects in the same fishery hold effort back until the CP fishery closes, and use their quota over the balance of the season at a lower weekly landings level, receiving higher prices. After experiencing both management systems, subjects choose to be in a group with IQ by a 3:1 margin. (JEL Q22, Q28, C73)     

CATEGORY REPORTING IN CHARITABLE GIVING: AN EXPERIMENTAL ANALYSIS

We examine the effect of category reporting on charitable giving, aiming to disentangle the publicity effect from the category effect. We compare subjects' donation decisions under three reporting plans: category reporting, where an honored category is prespecified and qualifying subjects were publicly acknowledged; category no reporting, where the same category was utilized but the qualifying donors were not publicly acknowledged; and no reporting, where neither category setting nor public reporting was utilized. We found that category reporting significantly increased average donations relative to no reporting, and that this superiority was due to the dual presence of the category setting and the public reporting. The category setting anchors donations toward the category threshold and increased the average donations when the threshold was modestly set. The public reporting, on the other hand, only worked at the highest category level. It further increased the donations by providing extra social‐image benefits. (JEL C90, C91, D64, H00)     

WHO'S PUBLISHING IN JMFT? AN EXAMINATION OF AUTHOR CHARACTERISTICS

This article examines the gender, setting, and degree of the first authors of published articles in JMFT from 1990 to 1995. Findings reveal that men are the first authors of 67% of the articles and women, 33%. PhDs are first authors on 58% of the articles, and authors in university settings write 53% of the published articles. Thirty-nine percent of the articles published during this period were research; 26%, clinical; 16%, theory; and 14%, training. Surprising findings were that MSW authors had a higher acceptance rate than PhDs, and authors in training institutes had a higher acceptance rate than those in university settings.     

POSTED OFFER MARKETS IN NEAR-CONTINUOUS TIME: AN EXPERIMENTAL INVESTIGATION

This paper reports an experiment conducted to evaluate a "near-continuous" variant of the posted offer trading institution, where the number of periods in a market session is increased by reducing sharply each period's maximum length. Experimental results suggest that although decisions in time-truncated periods are not equivalent to periods of longer duration, extensive repetition improves considerably the drawing power of equilibrium predictions in some challenging environments. Nevertheless, significant deviations remain in the near-continuous framework. We also observe that the extra data collected in the near-continuous framework allow new insights into price convergence and signaling . ( JEL C92, L12, L11)     

EMISSION TAXES,CLEAN TECHNOLOGY COOPERATION,AND PRODUCT MARKET COLLUSION: EXPERIMENTAL EVIDENCE

We use a laboratory experiment to study the link between cooperative research and development (R&D) in clean technology and collusion in a downstream product market in the presence of a time‐consistent emissions tax. Such a tax creates additional interconnections between firms, in addition to the standard technological spillovers. Our results show a strong link between R&D cooperation and market collusion under symmetric R&D spillovers in a duopoly, but when the spillovers are asymmetric, R&D cooperation does not necessarily result in collusion. With symmetric spillovers, the link between R&D cooperation and collusion remains strong even in three‐ and four‐firm industries. (JEL C90, L5, O30, Q55)     

AN EXAMINATION OF THE MARKET FOR FAVORS AND VOTES IN CONGRESS

This paper examines the strategies that "horse traders" and "power brokers" adopt in trading favors to pass legislation. Although the favors that they trade are generally impossible to observe, the paper develops a model that allows tests of favor trading. With data from the Senate vote on the Byrd Amendment to the 1990 Clean Air Act I conduct such a test. The test provides evidence that on this vote (i) favor trading occurred, (ii) the coalition leaders practiced price discrimination, and (iii) the coalition leaders did not collude with each another.     

NONVERBAL RECIPROCITY IN NONDISTRESSED MARITAL PARTNERS: AN EXAMINATION OF BASE RATE CHANGE*

The present study sought to incorporate recent suggestions for reciprocity research into an experimental design which could use behavioral base rate change as a method for determining nonverbal reciprocity in nondistressed couples. This study examined reciprocity by surreptitiously manipulating the touching behavior of one spouse, and monitoring responses of the other spouse. Forty couples were randomly assigned to either an experimental or control group. Couples were videotaped engaging in an assigned task which permitted interaction. During the interaction, positive touches, smiles, and headnods were monitored. Following instruction to do so, selected spouses in the experimental group increased their rate of touches. Results indicated that, in response, naive spouses subsequently increased their rate of touches. The results of this experiment provide supportive evidence for the lawful nature of reciprocity. The implications of these findings, and suggestions for subsequent reciprocity research, are forwarded.     

NETWORK STRUCTURE IN A LINK FORMATION GAME: AN EXPERIMENTAL STUDY

In this article, we use an experiment to evaluate the performance of alternative refinements in a Myersonian link formation game with a supermodular payoff function. Our results show that a non‐cooperative refinement, the global games (GG) approach, outperforms alternative cooperative refinements (strong Nash equilibrium, coalition‐proof Nash equilibrium, and pairwise stable Nash equilibrium) in explaining the observed experimental behavior in the static game of complete information with three players. The results are robust to some comparative statics and the GG approach shows a high predictive power under incomplete information. However, under repeated interaction or with a greater number of players, the GG approach loses predictive power, but so do the cooperative refinements. The results illustrate the importance of coordination failure in practice and the need to design mechanisms to reduce this effect in practical decision‐making problems. (JEL C70, C92, D20, D44, D82)