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Optimal Collusion-Proof Auctions

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Author Info
Yeon-Koo Che () (Department of Economics, Columbia University)
Jinwoo Kim () (Yonsei University)
Abstract

We study an optimal collusion-proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best auction i.e., the optimal auction in a collusion-free environment can be made collusion-proof, if at least one bidder is not collusive, or there are multiple bidding cartels, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best outcome is not weak collusion-proof implementable, we characterize an optimal collusion-proof auction. This auction involves nontrivial exclusion of collusive bidders i.e., the object is not sold to any collusive bidder with positive probability.

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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0708-05.

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Length: 46 pages
Date of creation: 2007
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Handle: RePEc:clu:wpaper:0708-05

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  2. Crawford, Vincent P, 1985. "Efficient and Durable Decision Rules: A Reformulation," Econometrica, Econometric Society, vol. 53(4), pages 817-35, July. [Downloadable!] (restricted)
  3. Gregory Pavlov, 2006. "Colluding on Participation Decisions," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2006-030, Boston University - Department of Economics. [Downloadable!]
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  6. Kyle Bagwell, 2004. "Collusion and Price Rigidity," Theory workshop papers 658612000000000081, UCLA Department of Economics. [Downloadable!]
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  7. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
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  9. Celik, Gorkem, 2004. "Mechanism Design with Collusive Supervision," Micro Theory Working Papers celik-04-09-13-05-42-19, Microeconomics.ca Website, revised 27 Jan 2008. [Downloadable!]
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    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  11. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November. [Downloadable!] (restricted)
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  12. Doh-Shin Jeon & Domenico Menicucci, 2005. "Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 337-360, Summer.
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  13. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
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  14. Jean-Jacques Laffont & David Martimort, 1998. "Collusion and Delegation," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 280-305, Summer. [Downloadable!] (restricted)
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  15. Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 127(1), pages 374-402, March. [Downloadable!] (restricted)
  16. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January. [Downloadable!] (restricted)
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