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Deterring collusion with a reserve price: an auction experiment

Published online by Cambridge University Press:  14 March 2025

Pacharasut Sujarittanonta  and
Ajalavat Viriyavipart Open the ORCID record for Ajalavat Viriyavipart [Opens in a new window]
Pacharasut Sujarittanonta
Affiliation:
Faculty of Economics, Chulalongkorn University, Bangkok, Thailand
Ajalavat Viriyavipart*
Affiliation:
Department of Economics, American University of Sharjah, Sharjah, United Arab Emirates
*
[email protected]
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Abstract

We experimentally compare collusive behaviors in first-price sealed-bid auctions without and with a reserve price. Before the auction begins, a bidder may offer a bribe to the other bidder, in exchange for a commitment not to participate in the auction. We find that the average offer and the rate of successful bribes are significantly lower in the treatment with a reserve price. These results are largely due to responding bidders who demand a greater share of the benefit from collusion. Although imposing a reserve price reduces efficiency, its optimality and bribe deterrence shift the surplus from the bidders to the seller.

Keywords

CollusionReserve priceAuctionsBribesExperiment

JEL classification

D44: Auctions C91: Laboratory, Individual Behavior C72: Noncooperative Games
Type
Original Paper
Information
Experimental Economics , Volume 24 , Issue 2 , June 2021 , pp. 536 - 557
Copyright
Copyright © 2020 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-020-09671-x) contains supplementary material, which is available to authorized users.

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