Auction design in the presence of collusion
AbstractWe study a problem of optimal auction design in the realistic case in which the players can collude both on the way they play in the auction and on their participation decisions. Despite the fact that the principal's opportunities for extracting payments from the agents in such a situation are limited, we show how the asymmetry of information between the colluding agents can be used to reduce the revenue losses from collusion. In a class of environments we show that the principal is even able to achieve the same revenue as when the agents do not collude. For cases in which it is not possible to do so we provide an optimal mechanism in the class of mechanisms with linear and symmetric menus and discuss the potential benefits of using asymmetric and nonlinear mechanisms. To address the problem of multiplicity of equilibria we show how the optimal mechanisms can be implemented as uniquely collusion-proof mechanisms.
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Bibliographic InfoArticle provided by Econometric Society in its journal Theoretical Economics.
Volume (Year): 3 (2008)
Issue (Month): 3 (September)
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Web page: http://econtheory.org
Collusion; mechanism design; auctions;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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- Che, Yeon-Koo & Kim, Jinwoo, 2009.
"Optimal collusion-proof auctions,"
Journal of Economic Theory,
Elsevier, vol. 144(2), pages 565-603, March.
- Che, Yeon-Koo & Kim, Jinwoo, 2007. "Optimal Collusion-Proof Auctions," MPRA Paper 6098, University Library of Munich, Germany.
- Yeon-Koo Che & Jinwoo Kim, 2007. "Optimal Collusion-Proof Auctions," Discussion Papers 0708-05, Columbia University, Department of Economics.
- Yeon-Koo Che & Jinwoo Kim, 2006. "Optimal Collusion-Proof Auctions," Discussion Papers 0506-22, Columbia University, Department of Economics.
- M. Bumin Yenmez, 2013. "Incentive-Compatible Matching Mechanisms: Consistency with Various Stability Notions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 120-41, November.
- Marquez, Robert & Singh, Rajdeep, 2013. "The economics of club bidding and value creation," Journal of Financial Economics, Elsevier, vol. 108(2), pages 493-505.
- Rachmilevitch, Shiran, . "Bribing in second-price auctions," Working Papers WP2011/7, University of Haifa, Department of Economics, revised 06 Oct 2011.
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