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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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    1. repec:eee:iepoli:v:40:y:2017:i:c:p:48-59 is not listed on IDEAS
    2. Dutta, Rohan & Levine, David Knudsen & Modica, Salvatore, 2018. "Collusion constrained equilibrium," Theoretical Economics, Econometric Society, vol. 13(1), January.
    3. Rachmilevitch, Shiran, 2015. "Bribing in second-price auctions," Games and Economic Behavior, Elsevier, vol. 92(C), pages 191-205.
    4. Papakonstantinou, Athanasios & Bogetoft, Peter, 2017. "Multi-dimensional procurement auction under uncertain and asymmetric information," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1171-1180.
    5. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    6. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
    7. Olga Gorelkina, 2014. "Bidder Collusion and the Auction with Target Bids," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2014_10, Max Planck Institute for Research on Collective Goods.
    8. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    9. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    10. Xiaogang Che & Tilman Klumpp, 2016. "Entry Deterrence in Dynamic Second-Price Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 168-201, May.
    11. Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.
    12. Jingfeng Lu & Euston Quah, 2009. "Private Provisions of a Discrete Public Good with Voluntary Participation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(3), pages 343-362, June.
    13. Hu, Audrey & Offerman, Theo & Onderstal, Sander, 2011. "Fighting collusion in auctions: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 84-96, January.
    14. Asseyer, Andreas, 2016. "Optimal Information Disclosure and Collusion," Annual Conference 2016 (Augsburg): Demographic Change 145779, Verein für Socialpolitik / German Economic Association.
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    JEL classification:

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

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