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Auction design in the presence of collusion

Author

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  • Pavlov, Gregory

    () (Department of Economics, University of Western Ontario)

Abstract

We study a problem of optimal auction design in the realistic case in which the players can collude both on the way they play in the auction and on their participation decisions. Despite the fact that the principal's opportunities for extracting payments from the agents in such a situation are limited, we show how the asymmetry of information between the colluding agents can be used to reduce the revenue losses from collusion. In a class of environments we show that the principal is even able to achieve the same revenue as when the agents do not collude. For cases in which it is not possible to do so we provide an optimal mechanism in the class of mechanisms with linear and symmetric menus and discuss the potential benefits of using asymmetric and nonlinear mechanisms. To address the problem of multiplicity of equilibria we show how the optimal mechanisms can be implemented as uniquely collusion-proof mechanisms.

Suggested Citation

  • Pavlov, Gregory, 2008. "Auction design in the presence of collusion," Theoretical Economics, Econometric Society, vol. 3(3), September.
  • Handle: RePEc:the:publsh:243
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    Citations

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    Cited by:

    1. Rachmilevitch, Shiran, 2015. "Bribing in second-price auctions," Games and Economic Behavior, Elsevier, vol. 92(C), pages 191-205.
    2. Meng, Dawen & Tian, Guoqiang, 2014. "Collusion-Proof Mechanism Design in Two-Agent Nonlinear Pricing Environments," MPRA Paper 57931, University Library of Munich, Germany.
    3. Marquez, Robert & Singh, Rajdeep, 2013. "The economics of club bidding and value creation," Journal of Financial Economics, Elsevier, vol. 108(2), pages 493-505.
    4. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    5. Sylvain Chassang & Juan Ortner, 2017. "Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement," Working Papers 072_2015, Princeton University, Department of Economics, Econometric Research Program..
    6. repec:eee:jetheo:v:170:y:2017:i:c:p:319-345 is not listed on IDEAS
    7. Gorkem Celik, 2015. "Implementation by Gradual Revelation," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 271-296, June.
    8. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
    9. Olga Gorelkina, 2014. "Bidder Collusion and the Auction with Target Bids," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2014_10, Max Planck Institute for Research on Collective Goods.
    10. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    11. M. Bumin Yenmez, 2013. "Incentive-Compatible Matching Mechanisms: Consistency with Various Stability Notions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 120-141, November.
    12. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    13. repec:spr:reecde:v:21:y:2017:i:3:d:10.1007_s10058-017-0204-x is not listed on IDEAS
    14. Xiaogang Che & Tilman Klumpp, 2016. "Entry Deterrence in Dynamic Second-Price Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 168-201, May.
    15. Asseyer, Andreas, 2016. "Optimal Information Disclosure and Collusion," Annual Conference 2016 (Augsburg): Demographic Change 145779, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Collusion; mechanism design; auctions;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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