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Ratifiability of efficient collusive mechanisms in second-price auctions with participation costs

  • Tan, Guofu
  • Yilankaya, Okan

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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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 59 (2007)
Issue (Month): 2 (May)
Pages: 383-396

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Handle: RePEc:eee:gamebe:v:59:y:2007:i:2:p:383-396
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Guofu Tan & Okan Yilankaya, 2005. "Equilibria in Second Price Auctions with Participation Costs," IEPR Working Papers 05.7, Institute of Economic Policy Research (IEPR).
  2. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-97, November.
  3. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November.
  4. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  5. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
  6. 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.
  7. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
  8. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
  9. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
  10. Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August.
  11. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Skrzypacz, Andrzej & Hopenhayn, Hugo, 2004. "Tacit collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 114(1), pages 153-169, January.
  13. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  15. Yilankaya, Okan, 1999. "A Note on the Seller's Optimal Mechanism in Bilateral Trade with Two-Sided Incomplete Information," Journal of Economic Theory, Elsevier, vol. 87(1), pages 267-271, July.
  16. Pesendorfer, Martin, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 381-411, July.
  17. Andreas Blume & Paul Heidhues, 2008. "Modeling Tacit Collusion in Auctions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 163-184, March.
  18. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
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