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Optimal Collusion-Proof Auctions

  • Yeon-Koo Che

    ()

    (Department of Economics, Columbia University)

  • Jinwoo Kim

    ()

    (Yonsei University)

We study an optimal collusion-proof auction in an environment where 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 auction i.e., the optimal auction in a collusion-free environment can be made collusion-proof, if at least one bidder is not collusive, or there are multiple bidding cartels, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best outcome is not weak collusion-proof implementable, we characterize an optimal 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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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0708-05.

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Length: 46 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:clu:wpaper:0708-05
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  19. Yeon-Koo Che & Jinwoo Kim, 2005. "Robustly collusion-proof implementation," Discussion Papers 0506-12, Columbia University, Department of Economics.
  20. Celik, Gorkem, 2004. "Mechanism Design with Collusive Supervision," Microeconomics.ca working papers celik-04-09-13-05-42-19, Vancouver School of Economics, revised 06 Aug 2008.
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  24. Doh Shin Jeon & Domenico Menicucci, 2001. "Optimal second-degree price discrimination and arbitrage: On the role of asymetric information among buyers," Economics Working Papers 624, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
  25. 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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