Theoretical Economics, Volume 17, Number 4 ( 2022)

Theoretical Economics 17 (2022), 1847–1895


Collusion enforcement in repeated first-price auctions

Wenzhang Zhang

Abstract


In the context of repeated first-price auctions, we explore how a bid-rigging cartel can simultaneously overcome the difficulty of soliciting truthful private information about valuations and the difficulty of enforcing its internal mechanism. Focusing on the class of trigger-strategy collusive agreements, we explicitly characterize the optimal collusive agreement for any given discount factor. Making use of the characterization, we also explore how a long-run seller can use a reserve price to fight the cartel.

Keywords: Collusion, bidding rings, first-price auctions, repeated games

JEL classification: D82

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