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On stability of efficient cartel mechanisms in first-price auctions with uninformed bidders

Author

Listed:
  • Cao, Xiaoyong
  • Hsueh, Shao-Chieh
  • Wang, Wei

Abstract

This paper investigates the stability of the efficient cartel mechanism in a sealed-bid first-price auction. We find that even if bidders are not informed about who else participates in the auction when they submit bids, the cartel is not stable. Hence, the instability of cartels does not hinge on the information structure imposed on the bidders. A seller does not have to reveal who participates in the auction to prevent them from forming a cartel.

Suggested Citation

  • Cao, Xiaoyong & Hsueh, Shao-Chieh & Wang, Wei, 2020. "On stability of efficient cartel mechanisms in first-price auctions with uninformed bidders," Economics Letters, Elsevier, vol. 187(C).
    • Handle: RePEc:eee:ecolet:v:187:y:2020:i:c:s0165176519304665
    DOI: 10.1016/j.econlet.2019.108918
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    References listed on IDEAS

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    1. Maskin, Eric & Riley, John, 2003. "Uniqueness of equilibrium in sealed high-bid auctions," Games and Economic Behavior, Elsevier, vol. 45(2), pages 395-409, November.
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    3. Cao, Xiaoyong & Tian, Guoqiang, 2010. "Equilibria in first price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 258-273, July.
    4. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-599, June.
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    5. Tan, Guofu & Yilankaya, Okan, 2007. "Ratifiability of efficient collusive mechanisms in second-price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 59(2), pages 383-396, May.
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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