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A simple model of coalitional bidding

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Author Info

  • Rajiv Vohra

    ()
    (Department of Economics, Brown University, Providence, Rhode Island 02912, USA)

  • In-Koo Cho

    ()
    (Department of Economics, University of Illinois, Champaign, Illinois 61820, USA)

  • Kevin Jewell

    ()
    (Cornerstone Research, Boston, Massachusetts 02115, USA)

Abstract

We analyze a model of coalitional bidding in which coalitions form endogenously and compete with each other. Since the nature of this competition influences the way in which agents organize themselves into coalitions, our main aim is to characterize the equilibrium coalition structure and the resulting bids. We do so in a simple model in which the seller may have good reason to allow joint bidding. In particular, we study a model in which the agents are budget constrained, and are allowed to form coalitions to pool their finances before engaging in the first price auction. We show that if the budget constraint is very severe, the equilibrium coalition structure consists of two coalitions, one slightly larger than the other; interestingly, it is not the grand coalition. This equilibrium coalition structure is one which yields (approximately) the maximum expected revenue. Thus the seller can induce the optimal (revenue maximizing) degree of cooperation among budget constrained buyers simply by permitting them to collude.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 19 (2002)
Issue (Month): 3 ()
Pages: 435-457

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Handle: RePEc:spr:joecth:v:19:y:2002:i:3:p:435-457

Note: Received: June 25, 1999; revised version: November 13, 2000
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Related research

Keywords: Auctions; Coalitions; Collusion; Joint bidding.;

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Cited by:
  1. Konishi, Hideo & Ray, Debraj, 2003. "Coalition formation as a dynamic process," Journal of Economic Theory, Elsevier, vol. 110(1), pages 1-41, May.
  2. Konishi, Hideo & Quint, Thomas & Wako, Jun, 2001. "On the Shapley-Scarf economy: the case of multiple types of indivisible goods," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 1-15, February.
  3. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.
  4. Sandro Brusco & Giuseppe Lopomo, 2005. "Simultaneous Ascending Auctions with Complementarities and Known Budget Constraints," Department of Economics Working Papers 05-13, Stony Brook University, Department of Economics.
  5. Iimi, Atsushi, 2004. "(Anti-)Competitive effect of joint bidding: evidence from ODA procurement auctions," Journal of the Japanese and International Economies, Elsevier, vol. 18(3), pages 416-439, September.
  6. Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.
  7. Atsushi Iimi, 2007. "Aid and competition in procurement auctions: a case of highway projects," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(7), pages 997-1015.

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