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Mechanism design with tacit collusion

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  • Atila Abdulkadiroglu

    () (Department of Economics, Columbia University)

  • Kim-Sau Chung

    () (Northwestern University - Department of Economics)

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    Abstract

    In the mechanism design literature, collusion is often modelled as agents signing side contracts. This modelling approach is in turn implicitly justified by some unspecified repeated-interaction story. In this paper, we first second-guess what kind of repeated-interaction story these side-contract theorists (would admit that they) are having in mind. We then show that, within this repeated-interaction story, there is a big difference between communicative and tacit collusion. While communicative collusion hurts the mechanism designer, tacit collusion is exploitable.

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    Bibliographic Info

    Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0102-68.

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    Length: 26 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:clu:wpaper:0102-68

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    1. Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998. "Collusion and Price Rigidity," Working papers 98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Jeffrey C. Ely & Juuso Valimaki, 1999. "A Robust Folk Theorem for the Prisoner's Dilemma," Discussion Papers 1264, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Che,Y.K. & Yoo,S.W., 1998. "Optimal incentives for teams," Working papers 8, Wisconsin Madison - Social Systems.
    5. Hitoshi Matsushima, 2001. "The Folk Theorem with Private Monitoring," CIRJE F-Series CIRJE-F-123, CIRJE, Faculty of Economics, University of Tokyo.
    6. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
    8. Peter Cramton, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Papers of Peter Cramton 95jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
    9. Andreas Blume & Paul Heidhues, 2001. "Tacit Collusion in Repeated Auctions," CIG Working Papers FS IV 01-23, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    10. Hopenhayn, Hugo A. & Skrzypacz, Andrzej, 2001. "Tacit Collusion in Repeated Auctions," Research Papers 1698r2, Stanford University, Graduate School of Business.
    11. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
    12. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
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