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Optimal Ring Size at First-Price Auctions

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  • Zhiyong Tu
  • Lan Ju

Abstract

This paper studies the optimal-ring-size problem in a first-price auction environment, where a collusive ring center can endogenously choose the number of its members. The key finding is that, contrary to the results for second-price auctions, the optimal ring at first-price auctions is generally not all-inclusive, especially when the number of bidders is large. Outsiders can free-ride the ring's suppressed competition and earn higher payoffs than by being a ring member; hence they choose not to participate in collusion. As a partial ring creates bidder asymmetry at first-price auctions, the overall allocation will be inefficient, which provides a basis for laws that outlaw collusion in auctions.

Suggested Citation

  • Zhiyong Tu & Lan Ju, 2015. "Optimal Ring Size at First-Price Auctions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(4), pages 609-621, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201512)171:4_609:orsafa_2.0.tx_2-
    DOI: 10.1628/093245613X14302136524752
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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