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Deterring collusion with a reserve price: an auction experiment

Author

Listed:
  • Pacharasut Sujarittanonta

    (Faculty of Economics, Chulalongkorn University)

  • Ajalavat Viriyavipart

    (Department of Economics, American University of Sharjah)

Abstract

We experimentally compare collusive behaviors in first-price sealed-bid auctions without and with a reserve price. Before the auction begins, a bidder may offer a bribe to the other bidder, in exchange for a commitment not to participate in the auction. We find that the average offer and the rate of successful bribes are significantly lower in the treatment with a reserve price. These results are largely due to responding bidders who demand a greater share of the benefit from collusion. Although imposing a reserve price reduces efficiency, its optimality and bribe deterrence shift the surplus from the bidders to the seller.

Suggested Citation

  • Pacharasut Sujarittanonta & Ajalavat Viriyavipart, 2021. "Deterring collusion with a reserve price: an auction experiment," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 536-557, June.
    • Handle: RePEc:kap:expeco:v:24:y:2021:i:2:d:10.1007_s10683-020-09671-x
    DOI: 10.1007/s10683-020-09671-x
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    More about this item

    Keywords

    Collusion; Reserve price; Auctions; Bribes; Experiment;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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