The Economics of Bidder Collusion

Marshall, Robert C.; Marx, Leslie M.; Meurer, Michael

doi:10.1007/978-1-4614-7095-3_14

Cited by 6 publications

(3 citation statements)

References 32 publications

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“…A second concern in the ascending auction format used in foreclosure auctions in Germany is the possibility of collusion among participants to avoid bidding up prices (Klemperer 2002a). We hypothesize that specialized buyers of foreclosed properties, who frequently interact with each other at different foreclosures, form bidding rings (or "bidding cartels") (see, e.g., Pagnozzi 2011;Marshall, Marx, and Meurer 2014;Lorentziadis 2016) and coordinate their (low) winning bids at different foreclosure auctions, avoiding competition. 22 Moreover, ascending auctions enable bidders to signal to each other or intimidate opponents through bidding strategies, such as high opening bids, high bid increases ("jump bids"), short response times to others' bids, or "code bidding" (Avery 1998;Isaac, Salmon, and Zillante 2007;Ettinger and Michelucci 2016;Hungria-Gunnelin 2018;Cramton and Schwartz 2000;Khazal et al 2020;Sommervoll 2020;Dalland et al 2021;Gunnelin et al 2023).…”

Section: Discussion and Limitationsmentioning

confidence: 99%

Bargain or Bust? Prices, Discounts, and Returns in the Market for Real Estate Foreclosures

Wiersma,

Daminger

2024

30th Annual European Real Estate Society Conference

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We examine foreclosure discounts and their subsequent impact on investor returns in Berlin's housing market from 1984 to 2022. Utilizing hedonic regression models and matching techniques on a data set of housing transactions, we determine that foreclosure discounts, ranging from 20 to 50 percent, are significant and persist over time. In a repeat sales approach, in which we explicitly account for the sequence of transactions, we show that initial investments in foreclosed properties yield average annualised returns surpassing matched non-distressed counterparts by 20.5 percentage points. However, when a foreclosure follows a regular sale, the average annualised returns are 9.6 percentage points lower than in matched non-distressed transaction pairs. Novel to the literature, we further show that this markdown is only associated with the foreclosure transaction, rather than putting a permanent stigma on the foreclosed apartment. Our ability to control for both observed and unobserved property characteristics suggests that this discount may be attributed to both a foreclosure stigma and the format used for foreclosure auctions in Germany. Consequently, our paper not only advances the foreclosure literature with new insights from a global city but also contributes to the discourse on auctions in a real estate context.

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Section: Discussion and Limitationsmentioning

confidence: 99%

Bargain or Bust? Prices, Discounts, and Returns in the Market for Real Estate Foreclosures

Wiersma,

Daminger

2024

30th Annual European Real Estate Society Conference

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“…By colluding, members of the colluding cartel-also known in the literature as a bidding ring-can improve their respective outcomes and substantially reduce the auctioneer's revenues. Recent studies have documented the prevalence of bidder collusion across sundry domains (Asker, 2010;Hendricks and Porter, 1989;Pesendorfer, 2000;Porter and Zona, 1999) 1 and it is now acknowledged as a major challenge for optimal auction design (Klemperer, 2002;Marshall et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Collusion and information revelation in auctions

Llorente-Saguer

Zultan

2017

European Economic Review

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The theoretical literature on collusion in auctions suggests that the first-price mechanism can deter the formation of bidding rings. However, such analyses neglect to consider the effects of failed collusion attempts, wherein information revealed in the negotiation process may affect bidding behavior. We experimentally test a setup in which theory predicts no collusion and no information revelation in first-price auctions. The results reveal a hitherto overlooked failing of the firstprice mechanism: failed collusion attempts distort bidding behavior, resulting in a loss of seller revenue and efficiency. Moreover, the first-price mechanism does not result in less collusion than the second-price mechanism. We conclude that, while the features of the first-price mechanism may have the potential to deter bidder collusion, the role of beliefs in guiding bidding behavior make it highly susceptible to distortions arising from the informational properties of collusive negotiation. Auction designers should take this phenomenon into account when choosing the auction mechanism.

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“…Recent studies have documented the prevalence of bidder collusion across sundry domains (Asker, 2010;Hendricks and Porter, 1989;Pesendorfer, 2000;Porter and Zona, 1999). 2 and it is now acknowledged as a major challenge for optimal auction design (Klemperer, 2002;Marshall et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection

Llorente-Saguer

Zultan

2014

SSRN Journal

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The theoretical literature on collusion in auctions suggests that the first-price mechanism can deter the formation of bidding rings. In equilibrium, collusive negotiations are either successful or are avoided altogether, hence such analysis neglects the effects of failed collusion attempts. In such contingencies, information revealed in the negotiation process is likely to affect the bidding behavior in firstprice (but not second-price) auctions. We test experimentally a setup in which collusion is possible, but negotiations often break down and information is revealed in an asymmetric way. The existing theoretical analysis of our setup predicts that the first-price mechanism deters collusion. In contrast, we find the same level of collusion in first-price and second-price auctions. Furthermore, failed collusion attempts distort the bidding behavior in the ensuing auction, leading to loss of efficiency and eliminating the revenue dominance typically observed in first-price auctions.

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The Economics of Bidder Collusion

Cited by 6 publications

References 32 publications

Bargain or Bust? Prices, Discounts, and Returns in the Market for Real Estate Foreclosures

Bargain or Bust? Prices, Discounts, and Returns in the Market for Real Estate Foreclosures

Collusion and information revelation in auctions

Auction Mechanisms and Bidder Collusion: Bribes, Signals and Selection

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