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Bidding collusion without passive updating

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  • Zheng, Charles Z.

Abstract

Collusion here takes the form of a side transfer between two bidders proposed by a mediator, before a first-price auction with independent private values. I find a necessary and sufficient condition, in terms of the bidders’ prior distributions, for existence of a side transfer acceptable to all types of both bidders on path of a perfect Bayesian equilibrium. The class of distributions defined by this condition is larger than the class under the passive updating assumption in the mechanism design literature on collusion. The off-path posterior belief most conducive to collusion entails a continuation equilibrium as if the collusion vetoer were bidding against a naive, value-bidding rival.

Suggested Citation

  • Zheng, Charles Z., 2019. "Bidding collusion without passive updating," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 70-77.
    • Handle: RePEc:eee:mateco:v:85:y:2019:i:c:p:70-77
    DOI: 10.1016/j.jmateco.2019.10.001
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    References listed on IDEAS

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    Cited by:

    1. Lu, Jingfeng & Lu, Zongwei & Riis, Christian, 2021. "Perfect bidder collusion through bribe and request," Games and Economic Behavior, Elsevier, vol. 129(C), pages 1-14.

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