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Optimal Collusion-Proof Auctions

  • Yeon-Koo Che

    ()

    (Columbia University)

  • Jinwoo Kim

    ()

    (Yonsei University)

We study an optimal weak collusion-proof auction in an environment where a subset (or subsets) of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best outcome - i.e., the noncollusive optimum - can be made weak collusion-proof, if at least one bidder is not collusive, or there are multiple bidding rings, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best is not weak collusion proof, we characterize an optimal weak collusion-proof auction. This auction involves nontrivial exclusion of collusive bidders - i.e., the object is not sold to any collusive bidder with positive probability.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0506-22.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0506-22.

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Length: 47 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:clu:wpaper:0506-22
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