Discussion Papers 2018

CIRJE-F-1096	"Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions"
Author Name	Marszalec, Daniel, Alexander Teytelboym, and Sanna Laksá
Date	October 2018
Full Paper	PDF File
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
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.

Abstract

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.