Comparing the effectiveness of collusion devices in first-price procurement: an auction experiment

Collusion in procurement auctions is illegal, but often observed. We compare experimentally three coordination mechanisms in how effectively they promote collusion in first-price procurement auctions. One mechanism aims at excluding competitive bids via bidding restrictions. The second one allows for promises on sharing the gains from collusion as in mutual shareholding. The third mechanism relies on unrestricted pre-play communication. Agreements made under the three mechanisms are non-binding. In the experiment, bidders interact with the same group of competitors only once as it is quite common in globalized (online) markets. We find that first-price procurement is quite collusion-proof regarding the first two mechanisms whereas pre-play communication, on average, increases profits. The communication protocols provide valuable insights about how to coordinate and implement non-binding collusion agreements in competitive one-shot interactions with private information.