Tacit collusion and capacity withholding in repeated uniform price auctions

Authors


  • We thank Francesco Renna, Sebastien Mitraille, Steffen Lippert, and seminar participants at the University of Akron, Cleveland State University, and the Wissenschaftszentrum Berlin fur Sozialforschung for helpful comments. We have also benefited from the detailed comments of the editor, Raymond Deneckere, and an anonymous referee. Earlier versions of this article were presented at the International Industrial Organization Conference in Chicago (April 2004), the EARIE Annual Conference in Berlin (September 2004), the WZB Conference on Markets and Political Economy in Berlin (October 2004), the CESifo Conference on Applied Microeconomics in Munich (March 2005), the Midwest Economic Theory Meetings in Nashville (April 2005), and the Seventh Conference of the SAET in Vigo (July 2005). Kovenock gratefully acknowledges financial support from the Industriens Utredningsinstitut in Stockholm and the Institut d'Analisi Economica (CSIC) at the Universitat Autonoma de Barcelona.

Abstract

This article analyzes tacit collusion in infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity-constrained firms. Under two popular definitions of the uniform price, when each firm sets a price-quantity pair, perfect collusion with equal sharing of profit is easier to sustain in the uniform price auction than in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this outcome. Even when firms may set bids that are arbitrary finite step functions of price-quantity pairs, in repeated uniform price auctions maximal collusion is attained with simple price-quantity strategies exhibiting capacity withholding.

Ancillary