Preventing Collusion between Firms in Auctions

Collusion among bidders in auctions is a serious concern for those interested in designing allocation procedures to allocate public assets whether the goal of the process is efficiency or revenue maximization. In either case, bidders acting collusively can seriously impair an auctioneer’s ability to accomplish their goal. There have been a wide variety of examples of collusion discussed in the economic literature including collusive bidding for school milk contracts (Pesendorfer (2000)), cattle auctions (Phillips, Menkhaus and Coatney (2001)), timber auctions (Baldwin, Marshall and Richard. (1997) ) and of course spectrum auctions which will be the focus of this study. We will present a brief survey of recent literature on collusion problems in mostly ascending auctions and then go on to discuss the Federal Communications Commission’s experience in dealing with collusion in their auctions as a case study on how the lessons from this literature can be applied.