Tacit Collusion in Auctions and Conditions for Its Facilitation and Prevention: Equilibrium Selection in Laboratory Experimental Markets

The paper studies bidder behavior in simultaneous, continuous, ascending price auctions. We design and implement a ‘‘collusion incubator’’ environment based on a type of public, symmetrically ‘‘folded’’ and ‘‘item-aligned’’ preferences. Tacit collusion develops quickly and reliably within the environment. Once tacit collusion developed, it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game-theoretic model. The only successful remedy was a non-public change in the preference of participants that destroyed the symmetrically, ‘‘folded’’ and ‘‘item aligned’’ patterns of preferences, creating head-to-head competition between two agents reminiscent of the concept of a ‘‘maverick.’’ (JEL L50, L94, D43)