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Wiley InterScience | |||
  Review of Economic StudiesVolume 67 Issue 3, Pages 381 - 411 Published Online: 1 Dec 2003 © 2010 The Review of Economic Studies Limited
Abstract | Full Text: PDF (Size: 193K) | Related Articles | Citation Tracking  A Study of Collusion in First-Price Auctions Copyright The Review of Economic Studies ABSTRACTThis paper examines the bidding for school milk contracts in Florida and Texas during the 1980s. In both states firms were convicted of bid-rigging. The data and legal evidence suggest that the cartels in the two states allocate contracts in different ways: One cartel divides the market among members, while the other cartel also uses side payments to compensate members for refraining from bidding. We show that both forms of cartel agreements are almost optimal, provided the number of contracts is sufficiently large. In the auction the cartel bidder may face competition from non-cartel bidders. The presence of an optimal cartel induces an asymmetry in the auction. The selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non-cartel bidder. The data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels.
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