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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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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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  11. Pavlov, Gregory, 2008. "Auction design in the presence of collusion," Theoretical Economics, Econometric Society, vol. 3(3), September.
  12. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
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  18. 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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  23. Aoyagi, Masaki, 2003. "Bid rotation and collusion in repeated auctions," Journal of Economic Theory, Elsevier, vol. 112(1), pages 79-105, September.
  24. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
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