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Optimal Collusion-Proof Auctions

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  • Che, Yeon-Koo
  • Kim, Jinwoo

Abstract

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.

Suggested Citation

  • Che, Yeon-Koo & Kim, Jinwoo, 2007. "Optimal Collusion-Proof Auctions," MPRA Paper 6098, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6098
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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