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Perfect bidder collusion through bribe and request

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  • Lu, Jingfeng
  • Lu, Zongwei
  • Riis, Christian

Abstract

We study collusion in a second-price auction with two bidders in a dynamic environment. One bidder can make a take-it-or-leave-it collusion proposal, which consists of both an offer and a request of bribes, to the opponent. We show that there always exists a robust equilibrium in which the collusion success probability is one. In the equilibrium, for each type of initiator the expected payoff is generally higher than the counterpart in any robust equilibria of the single-option model (Esö and Schummer (2004)) and any other separating equilibria in our model.

Suggested Citation

  • Lu, Jingfeng & Lu, Zongwei & Riis, Christian, 2021. "Perfect bidder collusion through bribe and request," Games and Economic Behavior, Elsevier, vol. 129(C), pages 1-14.
    • Handle: RePEc:eee:gamebe:v:129:y:2021:i:c:p:1-14
    DOI: 10.1016/j.geb.2021.05.001
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    References listed on IDEAS

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    Cited by:

    1. Jingfeng Lu & Zongwei Lu & Christian Riis, 2021. "Peace through bribing," Papers 2107.11575, arXiv.org, revised Apr 2023.
    2. Deng, Shanglyu, 2023. "Speculation in procurement auctions," Journal of Economic Theory, Elsevier, vol. 212(C).

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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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