Abstract
We analyze Stackelberg leadership in a first-price auction. Leadership is induced by an information system, represented by a spy, that leaks one bidder’s bid before others choose their bids. However, the leader may secretly revise his bid with some probability; therefore, the leaked bid is only an imperfect signal. Whereas leadership with perfect commitment exclusively benefits the follower, imperfect commitment yields a collusive outcome, even if the likelihood that the leader may revise his bid is arbitrarily small. This collusive impact shows up in all equilibria and is strongest in the unique pooling equilibrium which is also payoff dominant.
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Research support by the National Natural Science Foundation of China (Grant: 72171140), the Humanities and Social Sciences Research Foundation of the Ministry of Education of China (Grant:19YJA790009), and Korea University (Grant: K1919021) is gratefully acknowledged. We thank seminar participants at the Universidad de Los Andes (Buenos Aires) and the Academia Sinica (Taiwan) and in particular an anonymous referee whose comments and suggestions helped us significantly to improve our paper.
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Fan, C., Jun, B.H. & Wolfstetter, E.G. Spying and imperfect commitment in first-price auctions: a case of tacit collusion. Econ Theory Bull 11, 255–275 (2023). https://doi.org/10.1007/s40505-023-00257-3
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DOI: https://doi.org/10.1007/s40505-023-00257-3