Division of the Humanities and Social Sciences California Institute of Technology Pasadena, California 91125 Collusion in Multiple Object Simultaneous Auctions: Theory and Experiments

The choice of strategies by bidders who are allowed to communicate in auctions is studied. Using the tools of mechanism design, the possible outcomes of communication between bidders participating in a series of simultaneous rst-price auctions are investigated. A variety of mechanisms are incentive compatible when side payments are not allowed. When attention is restricted to mechanisms that rely only on bidders' ordinal ranking of markets, incentive compatibility is characterized and the ranking mechanism of Pesendorfer (1996) is interim incentive e cient. Laboratory experiments were completed to investigate the existence, stability, and e ect on bidder and seller surplus of cooperative agreements in multiple object simultaneous rst-price auctions. Collusive agreements stable in the laboratory. The choices of the experimental subjects often closely match the choices predicted by the ranking and serial dictator mechanisms presented earlier. However, a few notable exceptions raise interesting prospects for the theoretical development of models of cooperative behavior.