Alternating Bidding Schemes in Repeated Procurement Auctions (Job Market Paper)

This paper investigates tacit collusion in repeated procurement auctions without communication or side payments, focusing on the case of two bidders having identical costs under imperfect public monitoring where only winners, not bids are publicly observed. It finds the critical level of the discount factor to support any efficient perfect public equilibria (PPE). It presents a simple efficient bidding scheme, called the alternating bidding scheme (ABS), in which bidders take turns to win contracts, and shows that it is the unique efficient PPE that holds for any discount factor at or above that critical level. In addition it presents two classes of bidding schemes that achieve both efficiency and fairness.

Referring Customers Under Imperfect Public Monitoring (Joint with Minyan Zhu)

Firms selling different products often refer misallocated customers to one another. Instead of actions of its partner, a firm can only observe each other’s sales in every period, providing firms incentives to deviate from the socially optimal behavior. We analyze such situations in an infinite horizon repeated game with imperfect public monitoring. We analyze a class of “k+1 punishment schemes”, in which players “forgive” the first k bad signals they observe, and “punish” each other forever after the k+1’s bad signal. We characterize the unique optimal k in this class of schemes.

External Threat and Alliance Stability

When an existing alliance owning some natural resource faces danger of appropriation from an external enemy, it is optimum for its members to jointly invest in their defense. For members to behave collusively in the subgame perfect Nash equilibrium (SPNE), each of them has to be allocated with some minimum share of that resource. Under proportion-to-share rule of cost contribution and profit earning, this paper looks at how that minimum share requirement changes after the emergence of the external threat. We find that two factors, alliance size and cost factor contribute to the stability of the alliance in opposite directions. Further, force from more costly investment outweighs the force from increasing alliance size, which makes the alliance easier to maintain. A generalization of multiple shocks is also analyzed.