On 8 May 2015, the Competition Commission of Singapore (the “CCS”) released an Occasional Paper entitled “Auction Design to Mitigate Competition Concerns and Enhance Efficiency and Revenue”. The paper focuses on the competition concerns that may arise in various forms of auction designs, and references real-life examples in public and private sector auctions where auction design may have resulted in collusion between bidders or monopoly power.
How the recommendations on auction designs may affect business
The paper sets out various strategies to mitigate the risk of collusion and the creation of monopolies in auction design, such as those set out below.
On mitigating the risk of collusion:
- Bid restrictions: Limiting the language that can be used for bids to avoid signalling;
- Reserve prices: Setting sufficiently high reserve prices to reduce opportunities for synchronisation;
- Withholding information about bidder identities: To create increased uncertainty in coordination and collusion;
- Withdrawal rules: Making withdrawals irreversible or to implement a time lag to make signalling and punishment difficult for bidders;
On avoiding the creation of monopolies:
- Preventing incumbent entry: Block entry by incumbents into auctions; and
- Altering evaluation criteria: Including additional evaluation criteria for bids, such as rents or downstream prices that the bidder would offer if selected.
Factors affecting collusion in an auction
In formulating the recommendations on auction design, the paper discusses three main factors that would affect an auction’s susceptibility to collusion:
- Ability to monitor deviations by competitors;
- Ability to inflict punishment; and
- Multiple/repeated interactions among competitors participating in the auctions.
Factors affecting entry in an auction
The paper also discusses the following factors that would affect entry or participation in an auction:
- Simplicity of the auction, in terms of participation and understanding of the auction rules;
- Certainty of the outcome before participation; and
- The perceived information asymmetry between competitors.