Journal Article

A Study of Collusion in First-Price Auctions

Martin Pesendorfer

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 67, issue 3, pages 381-411
Published in print July 2000 | ISSN: 0034-6527
Published online July 2000 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00136
A Study of Collusion in First-Price Auctions

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This paper examines the bidding for school milk contracts in Florida and Texas during the 1980s. In both states firms were convicted of bid-rigging. The data and legal evidence suggest that the cartels in the two states allocate contracts in different ways: One cartel divides the market among members, while the other cartel also uses side payments to compensate members for refraining from bidding. We show that both forms of cartel agreements are almost optimal, provided the number of contracts is sufficiently large.

In the auction the cartel bidder may face competition from non-cartel bidders. The presence of an optimal cartel induces an asymmetry in the auction. The selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non-cartel bidder. The data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels.

Journal Article.  0 words. 

Subjects: Economics

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