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Collusion in one-shot second-price auctions

Author

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  • Chien-Liang Chen
  • Yair Tauman

Abstract

Most of the literature on collusive behavior in auctions ignores two important issues that make collusion difficult to sustain at least in one-shot interactions: the detection of cheating and the verification of bids. Colluding bidders may deceive each other by using shill bidders. Also, if the identities of the bidders and their bids are not published then it would be difficult to verify the bid of a colluding bidder. This paper addresses these problems in one shot second price auctions where one bidder offers another bidder a side payment in exchange for not participating in the auction, while the number of other bidders is stochastic. In spite of the barriers to collusion mentioned above, a simple side payment mechanism which depends only on the auction price is introduced. It induces a successful collusion, eliminates the verification problem, provides no incentive for the use of shill bidders and guarantees that the proponent obtains ex-post non-negative payoff. The colluding bidders are ex-ante strictly better off compared with the competitive case, irrespective of their types. Copyright Springer-Verlag Berlin/Heidelberg 2006

Suggested Citation

  • Chien-Liang Chen & Yair Tauman, 2006. "Collusion in one-shot second-price auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(1), pages 145-172, May.
    • Handle: RePEc:spr:joecth:v:28:y:2006:i:1:p:145-172
    DOI: 10.1007/s00199-005-0612-y
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    Citations

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    Cited by:

    1. Yunjian Xu & Katrina Ligett, 2018. "Commitment in first-price auctions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(2), pages 449-489, August.
    2. Herzog, Dominic, 2014. "Shill Bidder's Behavior in a Second-Price Online Auction," Working papers 2014/03, Faculty of Business and Economics - University of Basel.
    3. Correia-da-Silva, João, 2020. "Self-rejecting mechanisms," Games and Economic Behavior, Elsevier, vol. 120(C), pages 434-457.
    4. Lambert Schoonbeek, 2009. "Bribing potential entrants in a rent-seeking contest," Public Choice, Springer, vol. 139(1), pages 153-158, April.
    5. Rachmilevitch, Shiran, 2015. "Bribing in second-price auctions," Games and Economic Behavior, Elsevier, vol. 92(C), pages 191-205.
    6. Troyan, Peter, 2017. "Collusion and signaling in auctions with interdependent values," Journal of Economic Theory, Elsevier, vol. 170(C), pages 319-345.
    7. 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.
    8. Sumit Joshi & Poorvi Vora, 2013. "Weak and strong multimarket bidding rings," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(3), pages 657-696, August.
    9. Kivetz, Gil & Tauman, Yair, 2010. "Simple collusive agreements in one-shot first-price auctions," Games and Economic Behavior, Elsevier, vol. 69(1), pages 138-149, May.
    10. Rachmilevitch, Shiran, 2013. "Bribing in first-price auctions," Games and Economic Behavior, Elsevier, vol. 77(1), pages 214-228.

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