The choice of cooperative strategies in sealed bid auctions

Isaac and Walker (1985) demonstrated that stable cooperative agreements are often formed in sealed bid auctions. By extending the experimental environment to multiple, simultaneous sealed bid auctions, it is possible to not only examine whether bidders collude in experimental auctions, but also to determine the strategies they choose in order to implement their collusive agreements. Bidders have a variety of strategies, as opposed to the single auction, that they may select from. In the experiments reported, bidders often choose cooperative strategies that are consistent with truthful revelation of their values. However, bidders occasionally select strategies that ignore individual incentive compatibility. An analysis of the choice of strategies in different informational and distributional environments as well as of the auction outcomes provides some insights into these unusual choices.