Colluding on Participation Decisions
AbstractWe 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 InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-030.
Length: 42 pages
Date of creation: May 2006
Date of revision:
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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