Working Paper

Collusion in Repeated Auctions with Costless Communication

Abstract: In this paper, we present a model of repeated first-price private value auctions in which the bidders have access to a cheap talk communication mechanism. In this framework, messages allow bidders to transmit their preference rankings over the goods to be auctioned, similar to Pesendorfer (2000). We show that collusion through this static mechanism not only dominates the static bid rotation mechanism presented by McAfee and McMillan (1992), but it is also not strictly dominated by the dynamic bid rotation mechanism presented by Aoyagi (2003). However, we show that asymptotic efficiency of collusion through increasing the number of ordered goods, presented by Pesendorfer (2000), demands patience rates to asymptotically approach one, making collusion increasingly more difficult to sustain. Finally, we study mechanisms through which the auctioneer may try to break bidders' collusion.

Keywords: collusion; auctions; cheap talk communication; repeated games;

JEL Classification: D44; C72; L41;

https://doi.org/10.26509/frbc-wp-202421

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2024-10-07

Number: 24-21