Collusion in Auctions for Emission Permits: An Experimental Analysis

Posted by D. Daniel Sokol

Dallas Burtraw, Resources for the Future, Jacob K. Goeree, California Institute of Technology - Division of the Humanities and Social Sciences, Charles A. Holt, University of Virginia - Department of Economics, Erica C. Myers, Resources for the Future, Karen L. Palmer, Resources for the Future, William Shobe, provide some insights into Collusion in Auctions for Emission Permits: An Experimental Analysis.

ABSTRACT: Environmental markets have several institutional features that provide a new context for the use of auctions and which have not been studied previously. This paper reports on laboratory experiments testing three auction forms: uniform and discriminatory price sealed bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both without and with explicit communication. The clock appears to be more subject to successful collusion because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity).