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Optimal Collusion-Proof Auctions

  • Che, Yeon-Koo
  • Kim, Jinwoo

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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File URL: http://mpra.ub.uni-muenchen.de/6098/1/MPRA_paper_6098.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6098.

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Date of creation: 06 Sep 2007
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Handle: RePEc:pra:mprapa:6098
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  10. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  11. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
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  18. Graham, Daniel A & Marshall, Robert C & Richard, Jean-Francois, 1990. "Differential Payments within a Bidder Coalition and the Shapley Value," American Economic Review, American Economic Association, vol. 80(3), pages 493-510, June.
  19. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, vol. 7(2), pages 193-220, September.
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  21. Hopenhayn, Hugo A. & Skrzypacz, Andrzej, 2001. "Tacit Collusion in Repeated Auctions," Research Papers 1698r2, Stanford University, Graduate School of Business.
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  25. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
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