The Economics of Auctions
Collusion and Bidder Rings
Bidders may secretly agree not to compete to keep prices low, a form of cartel that auction designers try to prevent.
Cheating the seller.
Rings
Buyers agree who will win and share the gains afterward.
Detection
Unusual patterns, such as similar bids or rotating winners, arouse suspicion.
Law
Bid rigging is illegal and prosecuted by competition authorities.
Design
Secret reserve prices and sealed bids can make collusion harder.
A rotating win
Three contractors win alternately at inflated prices in public tenders.
Assuming all low bids are competitive
Check for patterns.
Key takeaways
- Rings suppress competition.
- Patterns can reveal collusion.
- Bid rigging is illegal.
- Design can deter it.
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