We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders’ decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey (1995) and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as preauction knockouts analyzed in the literature will not be ratified by cartel members. A high-value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller’s auction.
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Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number
05.15.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D44 - Microeconomics - - Market Structure and Pricing - - - Auctions D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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McAfee, R Preston & McMillan, John, 1992.
"Bidding Rings,"
American Economic Review,
American Economic Association, vol. 82(3), pages 579-99, June.
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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.
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Cramton, Peter C & Palfrey, Thomas R, 1990.
"Cartel Enforcement with Uncertainty about Costs,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 17-47, February.
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