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Bribing in second-price auctions

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    Abstract

    An IPV 2-bidder second-price auction is preceded by two rounds of bribing: prior to the auction each bidder can try to bribe his rival to depart from the auction, so that he (the briber) will become the sole participant and obtain the good for the reserve price. Bribes are offered sequentially according to an exogenously given order - there is a first mover and a second mover. I characterize the unique efficient collusive equilibrium in monotonic strategies; in it, the second mover extracts the entire collusive gain. This equilibrium remains an equilibrium even when valuations are interdependent, and if they are separable then the full surplus extraction result continues to hold. Additionally, a family of pooling equilibria is studied, in which all the types of the first mover offer the same bribe.

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    Bibliographic Info

    Paper provided by University of Haifa, Department of Economics in its series Working Papers with number WP2011/7.

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    Length: 50
    Date of creation:
    Date of revision: 06 Oct 2011
    Handle: RePEc:haf:huedwp:wp201107

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    Related research

    Keywords: Second-price auctions; collusion; bribing; signaling; surplus extraction;

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    1. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Eso, Peter & Schummer, James, 2004. "Bribing and signaling in second price auctions," Games and Economic Behavior, Elsevier, vol. 47(2), pages 299-324, May.
    3. Pavlov, Gregory, 2008. "Auction design in the presence of collusion," Theoretical Economics, Econometric Society, vol. 3(3), September.
    4. Blume, Andreas & Heidhues, Paul, 2006. "Private monitoring in auctions," Journal of Economic Theory, Elsevier, vol. 131(1), pages 179-211, November.
    5. Susan Athey & Kyle Bagwell, 1999. "Optimal Collusion with Private Information," Working papers 99-17, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
    7. Aoyagi, Masaki, 2007. "Efficient collusion in repeated auctions with communication," Journal of Economic Theory, Elsevier, vol. 134(1), pages 61-92, May.
    8. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
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