Collusion in repeated auctions: a simple dynamic mechanism

We analyze collusion in an infinitely repeated version of a standard auction with a continuum of types. Because of the lack of efficiency results in this setting the literature has focused on determining and comparing benchmarks on how well bidders can collude. Aoyagi (2003) has shown that the bidders can improve upon static bid rotation, making use of a dynamic bid rotation scheme, but this scheme does not allow to determine how much bidders can improve upon bid rotation. In this paper we design a very simple dynamic mechanism that improves upon static bid rotation and in the limit recovers one third of the gap between static bid rotation and efficiency, independently of the underlying distribution of values.