Editing Auction (section)

====Collusion====<!--[[Ring]] links here-->
Whenever bidders at an auction are aware of the identity of the other bidders there is a risk that they will form a "ring" or "pool" and thus manipulate the auction result, a practice known as [[collusion]] or more specially [[bid-rigging]].<ref>{{cite journal |last1=Beckmann |first1=Michael |title=Art Auctions and Bidding Rings: Empirical Evidence from German Auction Data |journal=Journal of Cultural Economics |date=May 2004 |volume=28 |issue=2 |pages=125–141 |doi=10.1023/B:JCEC.0000019483.38761.63|s2cid=154343127 }}</ref><ref>{{cite journal |last1=Marshall |first1=Robert C. |last2=Marx |first2=Leslie M. |title=Bidder collusion |journal=Journal of Economic Theory |date=March 2007 |volume=133 |issue=1 |pages=374–402 |doi=10.1016/j.jet.2005.12.004}}</ref><ref>{{cite journal |last1=Porter |first1=Robert H. |last2=Zona |first2=J. Douglas |title=Detection of Bid Rigging in Procurement Auctions |journal=Journal of Political Economy |date=1993-06-01 |volume=101 |issue=3 |pages=518–538 |doi=10.1086/261885 |s2cid=153700986 |url=https://www.journals.uchicago.edu/doi/abs/10.1086/261885 |access-date=22 May 2021 |issn=0022-3808}}</ref> By agreeing to bid only against outsiders, never against members of the "ring", competition becomes weaker, which may dramatically affect the final price level. After the end of the official auction, an unofficial auction may take place among the "ring" members. The difference in price between the two auctions could then be split among the members.  This form of a ring was used as a central plot device in the opening episode of the 1979 British television series ''The House of Caradus'', 'For Love or Money', uncovered by Helena Caradus on her return from Paris.

In the [[UK]], this auction practice is illegal.<ref>{{cite web |title=Changes in the law make auction rings easier to prosecute, but is the regulatory framework still fit for purpose? |url=https://www.artatlaw.com/blogpost/changes-in-the-law-make-auction-rings-easier-to-prosecute-but-is-the-regulatory-framework-still-fit-for-purpose |website=Art@Law |access-date=11 October 2020 |date=26 February 2014}}</ref> It jeopardizes competition on the auction and can demotivate other bidders from participating. It robs the seller of the true value of their good and reduces the auctioneer's commission.

Beyond explicit collusion, a [[tacit collusion|tacit coordination]] of bidders to keep bids low is at least theoretically possible. In case of [[spectrum auction]]s, the [[Federal Communications Commission]] (FCC) experimented with precautions restricting visibility of bids, limiting the number of bids, click-box bidding, and anonymous bidding in order to prevent bidders from [[signalling (economics)|signalling]] bidding information by embedding it into digits of the bids.<ref name=tacitfcc>{{cite journal |last1=Bajari |first1=Patrick |last2=Yeo |first2=Jungwon |title=Auction design and tacit collusion in FCC spectrum auctions |journal=Information Economics and Policy |date=1 June 2009 |volume=21 |issue=2 |pages=90–100 |doi=10.1016/j.infoecopol.2009.04.001 |url= http://www.nber.org/papers/w14441.pdf|language=en |issn=0167-6245}}</ref> Actions within the auction mechanism serve as a communication channel for collusive behavior, once no other channels are legal.