Discussion Papers 2018
CIRJE-F-1096 | "Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions" |
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Author Name | Marszalec, Daniel, Alexander Teytelboym, and Sanna Laksá |
Date | October 2018 |
Full Paper | |
Remarks | Revised in January 2020;Revised in February, March and October 2020. Earlier draft of this paper is available at ver. 2018 and Ver. 2020. |
Abstract |
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Auctions with below-bid pricing (e.g., uniform-price, and ascendingauctions) have remarkable theoretical properties, but practitioners are skeptical about their implementation. We present a dynamic model of collusion in multiunitauctions that explains this gap between theory and practice. To sustain collusion at the reserve price, bidders submit crank-handle bids. The cost of sustaining crank-handle collusion depends on the degree of below-bid pricing in the auction. Our model predicts that crank-handle collusion is easier to sustain in auctions with more below-bid pricing and when bidders are more symmetric. Evidenc efrom auctions of fishing quota in the Faroe Islands supports our predictions. |