Wednesday, April 15, 2009
Posted by D. Daniel Sokol
Owen R. Phillips (University of Wyoming - Economics) and Dale J. Menkhaus (University of Wyoming) provide us with the conditions of Maintaining Tacit Collusion in Repeated Ascending Auctions.
ABSTRACT: In a repeated two‐stage game, identical goods are produced and then sold through an ascending auction. Baseline market structures are created in the laboratory with a fixed number of units sold, and either two or four buyers bid as each unit is offered for sale. Bidding rings develop in both auction environments. Three “seller‐active” market structures are created in which sellers individually and repeatedly decide how many units to produce and bring to an auction. Auction designs have two or four sellers and two or four buyers. Bidding rings develop in two‐buyer markets but falter because sellers reduce production sufficiently to destabilize the ring. Bids rise to the equilibrium at the intersection of supply and demand. Prices are higher when there are four buyers. Sellers can tacitly coordinate through the advance production decision.