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Sellers' Implicit Collusion in Directed Search Markets

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  • Seungjin Han

Abstract

This paper studies a competing-mechanism game for directed search markets in which multiple sellers simultaneously offer selling mechanisms to multiple buyers to compete for trading opportunities and profits. Buyers approach any particular seller via directed search but there can be mis-coordination among buyers in the sense that they choose all the sellers offering the same mechanism with equal probability. A seller's mechanism can be sufficiently general to make his trading price contingent on participating buyers' messages, which may reflect changes in trading prices somewhere else. This allows sellers to sustain implicit collusion. This paper focuses on symmetric equilibria in which sellers offer the same ex-post incentive compatible mechanism. It provides the characterization of all symmetric ex-post equilibrium allocations and comparative statics regarding the range of equilibrium prices and profits. In a large market, the probability that sellers can sell their products at collusive prices depends on the ratio of buyers to sellers.

Suggested Citation

  • Seungjin Han, 2014. "Sellers' Implicit Collusion in Directed Search Markets," Department of Economics Working Papers 2014-05, McMaster University, revised May 2016.
    • Handle: RePEc:mcm:deptwp:2014-05
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    References listed on IDEAS

    as
    1. Han, Seungjin, 2015. "Robust competitive auctions," Economics Letters, Elsevier, vol. 136(C), pages 207-210.
    2. Dam Kaniska & Perez-Castrillo David, 2006. "The Principal-Agent Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-34, August.
    3. Michael Peters, 1997. "A Competitive Distribution of Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(1), pages 97-123.
    4. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    5. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
    6. Takuro Yamashita, 2010. "Mechanism Games With Multiple Principals and Three or More Agents," Econometrica, Econometric Society, vol. 78(2), pages 791-801, March.
    7. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(4), pages 1163-1188.
    8. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    9. Birulin, Oleksii, 2006. "Public goods with congestion," Journal of Economic Theory, Elsevier, vol. 129(1), pages 289-299, July.
    10. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
    11. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, vol. 111(2), pages 265-276, August.
    12. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
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    Cited by:

    1. Attar, Andrea & Campioni, Eloisa & Mariotti, Thomas & Piaser, Gwenaël, 2021. "Competing mechanisms and folk theorems: Two examples," Games and Economic Behavior, Elsevier, vol. 125(C), pages 79-93.
    2. Hong Yang & Brian Paul Cozzarin & Can Peng & Chun Xu, 2022. "Start‐ups and entrepreneurial teams," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1167-1184, July.

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    More about this item

    Keywords

    online markets; clickstream; implicit collusion; competing mechanisms; robust equilibrium;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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