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Auctions as Collusion Devices

Author

Listed:
  • Maarten C.W. Janssen

    (Faculty of Economics, Erasmus University Rotterdam)

Abstract

This paper develops an economic argument relating auctions to high marketprices. At the core of the argument is the claim that market competition andbidding in an auction should be analyzed as part of one game, where the pricingstrategies in the market subgame depend on the bidding strategies during theauction.I show that the only equilibrium in the overall game that is consistentwith the logic of forward induction is the one where firms bid an amount(almost) equal to the profits of the cooperative market outcome and follow acooperative pricing strategy in the market game resulting in high prices.

Suggested Citation

  • Maarten C.W. Janssen, 2003. "Auctions as Collusion Devices," Tinbergen Institute Discussion Papers 03-017/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20030017
    as

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    File URL: https://papers.tinbergen.nl/03017.pdf
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    References listed on IDEAS

    as
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    4. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
    5. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
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    More about this item

    Keywords

    auctions; market collusions.;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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