Seminario "The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring"
Miércoles 22/3, 17h
Departamento de Economía - Presentado por Juan Ortner
Abstract
We study how incentive constraints can be relaxed by randomization in a repeatedgame setting. Our study is motivated by the workings of a detected bidding cartel that operated in Kumatori, Japan that adopted a protocol of keeping the winning bid secret from the designated losers when defection was a concern. Keeping the winning bid secret makes accurately undercutting the winning bid more difficult and makes defection less attractive as potential defectors risk not winning the auction even if they deviate. We formalize these ideas in the context of a repeated-game setting and show that a cartel can attain higher payoffs by having the preselected winner randomize its bid and keep it secret from other members. Calibration of the model to the bid data of the cartel suggests that randomization may increase firms profits by about 56%.
*Jointly written with Kei Kawai and Jun Nakabayashi
Juan Ortner
Ph.D. in Economics, Princeton University.
Associate Professor, Department of Economics, Boston University. His research focuses on microeconomic theory, game theory, industrial organization and political economy.
We study how incentive constraints can be relaxed by randomization in a repeatedgame setting. Our study is motivated by the workings of a detected bidding cartel that operated in Kumatori, Japan that adopted a protocol of keeping the winning bid secret from the designated losers when defection was a concern. Keeping the winning bid secret makes accurately undercutting the winning bid more difficult and makes defection less attractive as potential defectors risk not winning the auction even if they deviate. We formalize these ideas in the context of a repeated-game setting and show that a cartel can attain higher payoffs by having the preselected winner randomize its bid and keep it secret from other members. Calibration of the model to the bid data of the cartel suggests that randomization may increase firms profits by about 56%.
*Jointly written with Kei Kawai and Jun Nakabayashi
Juan Ortner
Ph.D. in Economics, Princeton University.
Associate Professor, Department of Economics, Boston University. His research focuses on microeconomic theory, game theory, industrial organization and political economy.