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Nonratifiability of the Cartel Mechanism in First-Price Sealed-Bid Auction with Participation Costs

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  • Hsueh, Shao-Chieh
  • Tian, Guoqiang

Abstract

McAfee and McMillan (1992) investigate the coordinated biding strategies in a strong cartel, in which the cartel members can exclude new entrants and can make transfer payments, and show that the strong cartel mechanism is incentive-compatible and efficient. In this paper however, we show the strong cartel mechanism is no longer ratifiable in the presence of participation cost, in which case the bidder with the highest value in the cartel would have incentive to veto for the collusive mechanism. This behavior could make the maximum benefit for the winning bidder.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41202.

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Date of creation: Aug 2009
Date of revision: Oct 2010
Handle: RePEc:pra:mprapa:41202

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Related research

Keywords: Nonratifiability; Cartel Mechanism; First-Price Sealed-Bid Auction;

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  1. Kaplan, Todd & Sela, Aner, 2003. "Auctions with Private Entry Costs," CEPR Discussion Papers 4080, C.E.P.R. Discussion Papers.
  2. Engelbrecht-Wiggans, Richard, 2001. "The effect of entry and information costs on oral versus sealed-bid auctions," Economics Letters, Elsevier, vol. 70(2), pages 195-202, February.
  3. Peter Cramton & Thomas R. Palfrey, 1991. "Cartel Enforcement with Uncertainty About Costs," Papers of Peter Cramton 90ier, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  4. Todd Kaplan & Shmuel Zamir, 2012. "Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case," Economic Theory, Springer, vol. 50(2), pages 269-302, June.
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