A computational framework for analyzing dynamic auctions: The market impact of information sharing

This article develops a computational framework to analyze dynamic auctions and uses it to investigate the impact of information sharing among bidders. We show that allowing for the dynamics implicit in many auction environments enables the emergence of equilibrium states that can only be reached when firms are responding to dynamic incentives. The impact of information sharing depends on the extent of dynamics and provides support for the claim that information sharing, even of strategically important data, need not be welfare reducing. Our methodological contribution is to show how to adapt the experience‐based equilibrium concept to a dynamic auction environment and to provide an implementable boundary‐consistency condition that mitigates the extent of multiple equilibria.

[1]  A. Pakes,et al.  Markov-Perfect Industry Dynamics: A Framework for Empirical Work , 1995 .

[2]  Jean-Francois Richard,et al.  Bidder Collusion at Forest Service Timber Sales , 1997, Journal of Political Economy.

[3]  G. Gowrisankaran,et al.  Escalation of Scrutiny: The Gains from Dynamic Enforcement of Environmental Regulations , 2018, American Economic Review.

[4]  Lixin Ye,et al.  Deciding Between Competition and Collusion , 2003, Review of Economics and Statistics.

[5]  C. Shapiro.  Exchange of Cost Information in Oligopoly , 1986 .

[6]  J. Asker,et al.  Bidding Rings , 2022 .

[7]  C. Fershtman,et al.  Dynamic Games with Asymmetric Information: A Framework for Empirical Work* , 2012 .

[8]  R. Porter,et al.  Detection of Bid Rigging in Procurement Auctions , 1992, Journal of Political Economy.

[9]  J. Balat.  Highway Procurement and the Stimulus Package: Identication and Estimation of Dynamic Auctions with Unobserved Heterogeneity , 2013 .

[10]  Przemyslaw Jeziorski,et al.  Dynamic auction environment with subcontracting , 2016 .

[11]  E. Gal‐Or,et al.  Information Transmission—Cournot and Bertrand Equilibria , 1986 .

[12]  E. Maskin.  Asymmetric Auctions , 2007 .

[13]  Martin Pesendorfer.  A Study of Collusion in First-Price Auctions , 2000 .

[14]  R. Gibbons.  Game theory for applied economists , 1992 .

[15]  Christopher M. Snyder,et al.  Information Sharing and Competition in the Motor Vehicle Industry , 1996, Journal of Political Economy.

[16]  Joseph P. Romano,et al.  A Practical Two-Step Method for Testing Moment Inequalities , 2014 .

[17]  David Besanko,et al.  The Economics of Predation: What Drives Pricing When There is Learning-by-Doing? , 2011 .

[18]  Susan Athey,et al.  Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information , 1997 .

[19]  S. Athey,et al.  Collusion With Persistent Cost Shocks , 2008 .

[20]  Eric Maskin,et al.  Auction Theory with Private Values , 1985 .

[21]  Eric Maskin,et al.  Markov Perfect Equilibrium: I. Observable Actions , 2001, J. Econ. Theory.

[22]  Richard N. Clarke.  Collusion and the Incentives for Information Sharing , 1983 .

[23]  Martin Pesendorfer,et al.  Estimation of a Dynamic Auction Game , 2001 .

[24]  Joachim Groeger,et al.  A Study of Participation in Dynamic Auctions , 2014 .

[25]  Alision Joyce Kirby.  Trade associations as information exchange mechanisms , 1985 .

[26]  Ariel Pakes,et al.  A Framework for Applied Dynamic Analysis in I.O , 2000 .

[27]  M. Whinston,et al.  Internal versus External Growth in Industries with Scale Economies: A Computational Model of Optimal Merger Policy , 2014, Journal of Political Economy.

[28]  George J. Mailath,et al.  Collusion in second price auctions with heterogeneous bidders , 1991 .

[29]  E. Gal‐Or,et al.  Information Sharing in Oligopoly , 1985 .

[30]  M. Cripps.  The theory of learning in games. , 1999 .

[31]  Viplav Saini,et al.  Endogenous asymmetry in a dynamic procurement auction , 2012 .

[32]  D. Graham,et al.  Collusive Bidder Behavior at Single-Object Second-Price and English Auctions , 1987, Journal of Political Economy.

[33]  John Asker,et al.  A Study of the Internal Organization of a Bidding Cartel , 2010 .

[34]  Ariel Pakes,et al.  Methodological Issues in Analyzing Market Dynamics , 2016 .

[35]  H. Robbins.  A Stochastic Approximation Method , 1951 .

[36]  Juuso Toikka,et al.  Dynamic Oligopoly with Incomplete Information , 2016 .

[37]  D. Fudenberg,et al.  The Theory of Learning in Games , 1998 .

[38]  R. Porter,et al.  Ohio School Milk Markets: An Analysis of Bidding , 1997 .

[39]  D. Fudenberg,et al.  Self-confirming equilibrium , 1993 .

[40]  Jonathan D. Levin,et al.  Comparing Open and Sealed Bid Auctions: Evidence from Timber Auctions , 2008 .

[41]  Ariel Pakes,et al.  Chapter 30 A Framework for Applied Dynamic Analysis in IO , 2007 .

[42]  X. Vives,et al.  Information exchanges among firms and their impact on competition , 1995 .

[43]  Masaki Aoyagi,et al.  Bid rotation and collusion in repeated auctions , 2003, J. Econ. Theory.

[44]  P. Overgaard,et al.  Information Exchange, Market Transparency and Dynamic Oligopoly , 2008 .

[45]  Moritz Meyer-ter-Vehn,et al.  A Reputational Theory of Firm Dynamics , 2022, American Economic Journal: Microeconomics.