Bidding rings and the winner's curse

Ken Hendrícks*, Robert Porter, Guofu Tan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

38 Scopus citations


This article extends the theory of legal cartels to affiliated private value and common value environments. We show that efficient collusion is always possible in private value environments, but may not be in common value environments with a binding reserve price. In the latter case, collusion does more than simply transfer rents from the seller to the buyers, it also gives buyers a chance to pool their information prior to trade and make an efficient investment decision. However, full efficiency may not be compatible with information revelation. Buyers with high signals may be better off if no one colludes, leading to inefficient trade. This result provides a possible explanation for the low incidence of joint bidding, especially on marginal tracts, in U.S. federal government offshore oil and gas lease auctions. Copyright . 2008. RAND.

Original languageEnglish (US)
Pages (from-to)1018-1041
Number of pages24
JournalRAND Journal of Economics
Issue number4
StatePublished - Dec 2008

ASJC Scopus subject areas

  • Economics and Econometrics


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