Spying and imperfect commitment in first-price auctions: a case of tacit collusion (Q6088197)

In this article, the authors examine the impact of spying in a first-price auction, assuming the spied-at bidder may secretly revise his bid with some known probability. The collusive impact suggests that once a bidder has procured the service of a spy, the spied-at bidder passively tolerates being spied-at by not taking measures to neutralize the spy and by not firing the spy if his identity has become known. It is shown that this collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also payoff dominant. Section 2 presents the binary base model. Section 3 summarizes two benchmark games: the game with perfectly informative and with uninformative signals. In Section 4, the authors solve the game with imperfect commitment that yields imperfectly informative signals and fully characterize the unique pooling equilibrium and the family of partially separating equilibria. Section 5 summarizes the collusive impact of spying under imperfect commitment on players' payoffs and offers an intuitive interpretation.