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Core stable bidding rings in independent private value auctions with externalities

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  • Omer Biran

    ()
    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

Abstract

We consider a second price auction between bidders with independently and identically distributed valuations, where a losing bidder suffers a negative direct externality. Considering ex-ante commitments to form bidding rings we study the question of core stability of the grand coalition, namely: is there a subset of bidders that prefers forming a small bidding ring rather than participating in the grand cartel? We show that in the presence of direct externalities between bidders the grand coalition is not necessarily core stable, as opposed to the zero externality case, where the stability of the grand coalition is a known result. Finally, we study collusion in auctions as a mechanism design problem, insisting on the difficulty to compare ex-ante and interim commitments. In particular, we show that there are situations in which bidders prefer colluding before privately learning their types.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00608008.

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Date of creation: 11 Jul 2011
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Handle: RePEc:hal:wpaper:halshs-00608008

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Keywords: Auctions; collusion; externalities; Bayesian games; core; partition function game; mechanism design;

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