Tacit Collusion in Repeated Auctions: Uniform versus Discriminatory

Abstract

Within an infinitely repeated game, I compare the level and conduct of collusion under uniform and discriminatory auctions. For this purpose, I characterize the optimal collusive schemes and sets of sustainable profits under these auction formats. I show that uniform auctions facilitate collusion more than discriminatory auctions: the optimal penal code is equally severe under the two formats; but bidders’ deviation incentives are weaker in uniform auctions given that the payoff irrelevant bids can be used to relax the enforcement problem. This discussion is particularly relevant after the recent reforms in the electricity industry in England & Wales, and elsewhere.