Collusion and Predation in Auction Markets

The most important issues in auction design are the traditional concerns of competition policy–preventing collusive, predatory, and entry-deterring behaviour. Ascending and uniform-price auctions are particularly vulnerable to these problems, and the Anglo-Dutch auction–a hybrid of the sealed-bid and ascending auctions–may often perform better. Effective anti-trust policy is also critical. However, everything depends on the details of the context; the circumstances of the recent U.K. mobile-phone license auction made an ascending format ideal, but this author (and others) correctly predicted the same format would fail in the Netherlands and elsewhere. Auction design is not “one size Þts all”. We also discuss the 3G spectrum auctions in Germany, Italy, Austria and Switzerland, and football TV-rights, TV franchise and other radiospectrum auctions, electricity markets, and takeover battles. c ° Paul Klemperer, 2001 JEL Nos D44 (Auctions) L41 (Antitrust) L96 (Telecommunications) This is a revised and extended version of the paper previously circulated under the title “What Really Matters in Auction Design”. Disclaimer : I was the principal auction theorist advising the U.K. government’s Radiocommunications Agency, which designed and ran the recent U.K. mobile-phone license auction. Ken Binmore had a leading role and supervised experiments testing the proposed designs. Other academic advisors included Tilman Borgers, Jeremy Bulow, Philippe Jehiel, and Joe Swierzbinski. The views expressed in this paper are mine alone. Although some observers thought some of the behaviour described below warranted further investigation, I do not intend to suggest that any of it is improper or violates any applicable rules or laws.