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Collusive communication schemes in a first-price auction

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  • Helmuts Āzacis
  • Péter Vida

Abstract

We study optimal bidder collusion in an independent private value first-price auction with two bidders and two possible valuations. There is a benevolent center that knows the bidders’ valuations and sends private signals to the bidders in order to maximize their expected payoffs. After receiving their signals, bidders compete in a standard first-price auction, that is, without side payments or bid restrictions. We find that to improve on the bidders’ payoffs, the signals must depend upon the valuations. If the bidders’ signals are restricted to be non-correlated (depend only on the opponent’s valuation), then the bidders’ payoffs are strictly higher than the larger possible set of signals. If the signals are restricted to be perfectly correlated (public), only two possible signals are needed to achieve the highest bidder payoffs. However, these payoffs can be improved upon if the two signals are allowed to be imperfectly correlated. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
    • Handle: RePEc:spr:joecth:v:58:y:2015:i:1:p:125-160
    DOI: 10.1007/s00199-013-0778-7
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    Cited by:

    1. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2017. "First‐Price Auctions With General Information Structures: Implications for Bidding and Revenue," Econometrica, Econometric Society, vol. 85, pages 107-143, January.
    2. Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
    3. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2021. "Search, Information, and Prices," Journal of Political Economy, University of Chicago Press, vol. 129(8), pages 2275-2319.
    4. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    5. Chen, Zhuoqiong, 2021. "Optimal information exchange in contests," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    6. Zhuoqiong Chen, 2021. "All-pay auctions with private signals about opponents’ values," Review of Economic Design, Springer;Society for Economic Design, vol. 25(1), pages 33-64, June.
    7. Anastasia Antsygina & Mariya Teteryatnikova, 2023. "Optimal information disclosure in contests with stochastic prize valuations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 743-780, April.
    8. Kfir Eliaz & Roberto Serrano, 2014. "Sending information to interactive receivers playing a generalized prisoners’ dilemma," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(2), pages 245-267, May.
    9. Helmuts Āzacis, 2020. "Information disclosure by a seller in sequential first-price auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(2), pages 411-444, June.
    10. Hyeon Park, 2019. "Multi-bidder First Price Auction with Beliefs," Studies in Microeconomics, , vol. 7(1), pages 140-160, June.
    11. Gregory Pavlov, 2013. "Correlated Equilibria and Communication Equilibria in All-pay Auctions," University of Western Ontario, Departmental Research Report Series 20132, University of Western Ontario, Department of Economics.
    12. Dirk Bergemann & Benjamin Brooks & Stephen Morris, 2013. "Extremal Information Structures in the First Price Auction," Working Papers 055-2013, Princeton University, Department of Economics, Econometric Research Program..

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    More about this item

    Keywords

    Bidder-optimal signal structure; Bid coordination mechanism; Collusion; (Bayes) correlated equilibrium; First-price auction; Public and private signals; D44; D82;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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