Price Randomization and Dynamic Market Share Re-Allocation in Imperfect Cartels

Abstract

We analyze the sustainability of collusion in infinitely repeated symmetric first-price procurement auctions with complete information. We show that strategies combining on-path price randomization with dynamic market-share reallocations facilitate collusion at discount factors below the threshold for perfect collusion. Our theory can explain imperfect bid rotation in bidding rings as well as observed cartel behavior in which apparently deliberate deviations from collusive pricing happen and are followed by internal reallocations rather than cartel breakdown.