Auction Theory, 2nd Edition

158 Bidding Rings

Even if bidders were ex ante symmetric, the presence of a ring would natu-

rally introduce asymmetries between bidders who are members of the ring and

those who are not. As we have seen, equilibrium behavior in asymmetric first-

price auctions does not lend itself to ready analysis. The equilibrium behavior

of bidders in asymmetric second-price auctions, with or without a ring, is, how-

ever, quite transparent and allows us to focus our attention on a new set of issues

surrounding collusion among bidders.

11.1 COLLUSION IN SECOND-PRICE AUCTIONS

Let I ⊆N be the set of bidders in the bidding ring or cartel. Without loss of

generality, we will suppose that

I ={1,2, ...,I} and denote by N \I ={I +1,

I +2, ..., N} the set of bidders outside ...