In auctions, bidders compete with one another in their attempt to 1 purchase the goods that are up for sale * But buyer competition may be reduced or disappear when a ring of colluding bidders is present. The purpose of the participants to a ring is to eliminate buyer competition and to realize a gain over vendors. When all participants are members of the ring, this is done by purchasing the item at the reserve price and splitting the spoils (the difference between the item market value and the reserve price) among the participants. "The term ring apparently derives from the fact that in a settlement sale following the auction, members of the collusive arrangement form a circle or ring to facilitate observation of their trading behavior by the ring leader" (Cassady jr. (1967)). If the coalition members knew other players' values, the problem faced by the ring might be easily solved: the player with the highest value should submit a serious bid and the other members, on the contrary, only phony bids. However, ring participants do not usually know the values of other members. Therefore, ring members have to find out some mechanism which selects the player who has to bid seriously and, eventually, esta- blish side payments paid to each of the losers2.
1 Introduction.- 2 The Experiment.- 2.1 Introduction and Related Literature.- 2.2 Experimental Design.- 2.3 Theory of Collusion in First-price Auctions.- 2.4 Experimental Results.- 2.4.1 Do Experimental Subjects Cooperate?.- 2.4.2 Observed Mechanisms.- 2.4.3 Winners' Bids and Payoff Shares.- 2.4.4 Two-Player Coalition versus One Individual Bidder.- 2.4.5 Summing Up.- 2.5 Theoretical Predictions versus Data.- 2.5.1 The Announcement Mechanism.- 2.5.2 Announcement Mechanism: The Behavior of Players Who Cheat.- 2.5.3 Announcement Mechanism: Optimality.- 2.5.4 Bid-bargain Mechanism.- 2.5.5 Bid-Bargain Mechanism: Optimality.- 2.5.6 Lattice Mechanism.- 2.5.7 Lattice Mechanism: Optimality.- 2.5.8 First-Price Auction Mechanism.- 2.5.9 Summing Up.- 2.6 Other Mechanisms.- 2.7 Strategic Behavior and the End Effect.- 3 A Descriptive Model.- 3.1 Conditional Probabilities.- 3.2 The Model.- 4 Mechanisms of Collusion.- 4.1 The Distribution Function.- 4.2 Announcement Mechanism.- 4.3 Bid-bargain Mechanism.- 4.3.1 (Non-)Optimality.- 4.4 Lattice Mechanism.- 4.4.1 Optimality.- 4.4.2 The Best Lattice With Four Intervals.- 4.5 First-Price Auction Mechanism.- 4.6 Summing Up.- 5 Two Extensions.- 5.1 Lattice With Continuous Bids.- 5.2 Two-player Coalition.- 6 Conclusion.- A Instructions and Forms.- B Experimental Data.- C Experimental Data.- D Non-cooperative Bidding.- E Player 2's Equilibrium Strategy.- List of Figures.- List of Tables.
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