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Spying and imperfect commitment in first-price auctions: a case of tacit collusion

Author

Listed:
  • Cuihong Fan

    (Shanghai University of Finance and Economics)

  • Byoung Heon Jun

    (Korea University)

  • Elmar G. Wolfstetter

    (Humboldt-University at Berlin)

Abstract

We analyze Stackelberg leadership in a first-price auction. Leadership is induced by an information system, represented by a spy, that leaks one bidder’s bid before others choose their bids. However, the leader may secretly revise his bid with some probability; therefore, the leaked bid is only an imperfect signal. Whereas leadership with perfect commitment exclusively benefits the follower, imperfect commitment yields a collusive outcome, even if the likelihood that the leader may revise his bid is arbitrarily small. This collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also payoff dominant.

Suggested Citation

  • Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2023. "Spying and imperfect commitment in first-price auctions: a case of tacit collusion," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 255-275, October.
    • Handle: RePEc:spr:etbull:v:11:y:2023:i:2:d:10.1007_s40505-023-00257-3
    DOI: 10.1007/s40505-023-00257-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Tacit collusion; Espionage; Second-mover advantage; Signaling; Incomplete information;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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