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Core stable bidding rings in independent private value auctions with externalities

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  • Biran, Omer

Abstract

We consider a second price auction between bidders with independently and identically distributed valuations, where a losing bidder suffers a negative direct externality. Considering ex-ante commitments to form bidding rings we study the question of core stability of the grand coalition, namely: is there a subset of bidders that prefers forming a small bidding ring rather than participating in the grand cartel? We show that in the presence of direct externalities between bidders the grand coalition is not necessarily core stable, as opposed to the zero externality case, where the stability of the grand coalition is a known result. Finally, we study collusion in auctions as a mechanism design problem, insisting on the difficulty to compare ex-ante and interim commitments. In particular, we show that there are situations in which bidders prefer colluding before privately learning their types.

Suggested Citation

  • Biran, Omer, 2011. "Core stable bidding rings in independent private value auctions with externalities," MPRA Paper 32164, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:32164
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    More about this item

    Keywords

    Auctions; collusion; externalities; Bayesian games; core; partition function game; mechanism design.;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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