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Auction design in the presence of collusion

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Author Info

  • Pavlov, Gregory

    ()
    (Department of Economics, University of Western Ontario)

Abstract

We 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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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20080383/1989/109
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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 3 (2008)
Issue (Month): 3 (September)
Pages:

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Handle: RePEc:the:publsh:243

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Web page: http://econtheory.org

Related research

Keywords: Collusion; mechanism design; auctions;

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Cited by:
  1. Kaplan, Todd R & Zamir, Shmuel, 2014. "Advances in Auctions," MPRA Paper 54656, University Library of Munich, Germany.
  2. Che, Yeon-Koo & Kim, Jinwoo, 2007. "Optimal Collusion-Proof Auctions," MPRA Paper 6098, University Library of Munich, Germany.
  3. 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.
  4. Marquez, Robert & Singh, Rajdeep, 2013. "The economics of club bidding and value creation," Journal of Financial Economics, Elsevier, vol. 108(2), pages 493-505.
  5. 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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