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Colluding on Participation Decisions

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Author Info

  • Gregory Pavlov

    ()
    (Boston University, Department of Economics)

Abstract

We study the principal’s optimal response to collusion in an adverse selection environment. Building on the framework of Laffont and Martimort (1997, 2000) we advance it into several directions. First, unlike most of the literature, we study a stronger collusion when the agents can coordinate their participation decisions in addition to the joint play of the mechanism. Second, we make precise the economic nature of the transaction costs due to the presence of the asymmetric information in the collusive problem. Finally, while most of the literature focused on the two-type distributions, in our model the private information is distributed continuously. We characterize the set of implementable collusion-proof outcomes of the game, and relate it to the interim incentive-efficiency, which is a standard concept of efficiency under asymmetric information. After that we solve the principal’s problem by optimizing over a restricted set of mechanisms, which turn out to be optimal in a class of cases and allow the principal to fight collusion off at no cost.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-030.

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Length: 42 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-030

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Related research

Keywords: Collusion; Mechanism design; Auctions;

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Cited by:
  1. Yeon-Koo Che & Jinwoo Kim, 2007. "Optimal Collusion-Proof Auctions," Discussion Papers 0708-05, Columbia University, Department of Economics.
  2. Dequiedt, Vianney, 2007. "Efficient collusion in optimal auctions," Journal of Economic Theory, Elsevier, vol. 136(1), pages 302-323, September.
  3. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
  4. Sandeep Baliga & Tomas Sjostrom, 2005. "Contracting with Third Parties," Levine's Bibliography 784828000000000408, UCLA Department of Economics.
  5. Nicolas Gruyer, 2008. "Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...")," Economics Working Papers 06, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
  6. Jansen, Jos & Jeon, Doh-Shin & Menicucci, Domenico, 2008. "The organization of regulated production: Complementarities, correlation and collusion," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 327-353, January.
  7. Dequiedt, V., 2006. "Ratification and veto constraints in mechanism design," Working Papers 200606, Grenoble Applied Economics Laboratory (GAEL).
  8. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," Microeconomics.ca working papers celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.

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