Clustered Bids in First-Price Auctions: Collusion or Competition?

Clustering of the two most competitive bids in first-price auctions can be indicative of collusive behavior. However, it can also reflect non-cooperative strategies under complete information. I propose a simple procedure to distinguish between the two observationally equivalent explanations. This method requires the knowledge of winning bids and the determinants of the bid of the second most competitive bidder.

De Leverano, Adriano (2023), Clustered Bids in First-Price Auctions: Collusion or Competition?, Economics Letters 233 , 111393