Tacit Collusion in Auctions and Conditions for its Facilitation and Prevention: Equilibrium Selection in Laboratory Experimental Markets

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."

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