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.