Collusion and Equilibrium Selection in Auctions

Abstract

We study bidder collusion and test the power of payoff dominance as an equilibrium selection principle in experimental multi-object ascending auctions. In these institutions low-price collusive equilibria exist along with competitive payoff-inferior equilibria. Achieving payoff-superior collusive outcomes requires complex strategies that, depending on the environment, may involve signalling, market splitting, and bid rotation. We provide the first systematic evidence of successful bidder collusion in such complex environments without communication. The results demonstrate that in repeated settings bidders are often able to coordinate on payoff-superior outcomes, with the choice of collusive strategies varying systematically with the environment. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.