TACIT COLLUSION IN AUCTIONS AND CONDITIONS FOR ITS FACILITATION AND PREVENTION: EQUILIBRIUM SELECTION IN LABORATORY EXPERIMENTAL MARKETS |
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| Authors: | JIN LI and CHARLES R PLOTT |
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| Institution: | Li:;Kellogg School of Management, Northwestern University, Leverone Hall, 6th Floor, 2001 Sheridan Road, Evanston, IL 60208. Phone 847 467 0306, Fax 847 467 1777, E-mail:
Plott:;California Institute of Technology, Division of Humanities and Social Sciences, Pasadena, CA 91125. Phone 626395-4209, Fax 626 793 8580, E-mail: |
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| Abstract: | 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) |
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