Collusion in auctions: investigation of possibilities in the coal auctions in India
Student name: Mr Kirtiraj Lahiry
Guide: Dr Soumendu Sarkar
Year of completion: 2017
Host Organisation: TERI University
Abstract: Past allocations of coal blocks, in India, being marred with controversies on the grounds of being arbitrary and discretionary led to the de-allotment of 204 coal blocks by the Supreme Court in 2014. Since then, auctions and competitive bidding were introduced in the allocation of coal blocks. Now bidder collusion is a pervasive problem and has been addressed throughout theoretical and empirical academic literature. In auctions, bidders may set up a cartel, or a bidding ring, with the aim of increasing their profit at the expense of the seller and ultimately lower the efficiency of resource allocation. This paper makes theoretical comments on the auction format determined by the Government of India, based on the current regulations and stipulations, regarding it being collusion-proof. It is observed that the prior-allottee (PA) firms face a higher effective entry cost due to the levy component than the new-allottee (NA) firms. This creates a contradictory situation. Without this skewed cost distribution, the PA firms have an incentive to collude against the NA firms whereas with this differential treatment the NA firms have an incentive to collude against the PA firms. This calls for empirical investigation into the optimality of entry costs.
Keywords; coal block auction, collusion in auctions, optimal entry cost, entry deterrence.
