A BEJTE Contributions article.

Abstract

In its attempts to deter and prosecute big rigging, U.S. antitrust authorities have focused on sealed-bid procurements, rather than on ascending-bid auctions. One possible justification for this focus is the idea, supported by the existing theoretical literature, that collusion creates inefficiency at sealed-bid auctions, but not at ascending-bid auctions. We show when there is no pre-auction communication and the collusive mechanism satisfies ex-post budget balance, collusion does affect efficiency. In particular, any collusive mechanism that increases cartel members' expected payoffs relative to non-cooperative play results in inefficiency either in the allocation among cartel members or in the allocation between cartel and non-cartel bidders, or both.

Submitted: April 30, 2004 · Accepted: June 17, 2005 · Published: June 29, 2005

Originally published in Contributions to Theoretical Economics.

Recommended Citation

Lopomo, Giuseppe; Marshall, Robert C.; and Marx, Leslie M. (2005) "Inefficiency of Collusion at English Auctions," Contributions to Theoretical Economics: Vol. 5 : Iss. 1, Article 4.
Available at: http://www.bepress.com/bejte/contributions/vol5/iss1/art4