Private Monitoring in Auctions

WZB, Markets and Political Economy Working Paper No. SP II 2003-14

53 Pages Posted: 25 Jun 2004

See all articles by Andreas Blume

Andreas Blume

University of Pittsburgh - Department of Economics

Paul Heidhues

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Date Written: September 2003

Abstract

We study collusion in repeated first-price auctions under the condition of minimal information release by the auctioneer. In each auction a bidder only learns whether or not he won the object. Bidders do not observe other bidders' bids, who participates or who wins in case they are not the winner. We show that for large enough discount factors collusion can nevertheless be supported in the infinitely repeated game. While there is a unique Nash equilibrium in public strategies, in which bidders bid competitively in every period, there are simple Nash equilibria in private strategies that support bid rotation. Equilibria that either improve on bid rotation or satisfy the requirement of Bayesian perfection, but not both, are only slightly more complex. Our main result is the construction of perfect Bayesian equilibria that improve on bid rotation. These equilibria require complicated inferences off the equilibrium path. A deviator may not know who has observed his deviation and consequently may have an incentive to use strategic experimentation to learn about the bidding behavior of his rivals.

Keywords: tacit collusion, repeated auctions, supergames, contagion, bid-rotation, trigger strategies

JEL Classification: C73, D44

Suggested Citation

Blume, Andreas and Heidhues, Paul, Private Monitoring in Auctions (September 2003). WZB, Markets and Political Economy Working Paper No. SP II 2003-14, Available at SSRN: https://ssrn.com/abstract=473723 or http://dx.doi.org/10.2139/ssrn.473723

Andreas Blume

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States

Paul Heidhues (Contact Author)

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
112
Abstract Views
1,801
Rank
441,967
PlumX Metrics