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Published January 2018 | Supplemental Material
Journal Article Open

Collusion through communication in auctions

Abstract

We study the extent to which communication can serve as a collusion device in one-shot first- and second-price sealed-bid auctions. In an array of laboratory experiments we vary the amount of interactions (communication and/or transfers without commitment) available to bidders. We find that communication alone leads to statistically significant but limited price drops. When, in addition, bidders can exchange transfers, revenues decline substantially, with over 70% of our experimental auctions culminating in the object being sold for approximately the minimal price. Furthermore, the effects of communication and transfers are similar across auction formats. We contrast these results with those generated in repeated auctions. By and large, repeated auctions yield lower collusion and lower efficiency levels.

Additional Information

© 2017 Elsevier Inc. Received 20 January 2017, Available online 7 November 2017. We thank Dino Gerardi, Ben Gillen, Sotiris Georganas, Stephen Morris, Jean-Laurent Rosenthal, two anonymous reviewers, and the Advisory Editor for useful suggestions. We also thank Joy Basinger, Silvia Kim, Tatiana Mayskaya, and Li Song for superb research assistance. We gratefully acknowledge financial support from the National Science Foundation (SES 0963583 and SES 1629613) as well as the Gordon and Betty Moore Foundation (Grant 1158).

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