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Collusion as an Informed Principal Problem

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  • Lucia Quesada

    (University of Wisconsin Madison)

Abstract

In this paper we address the question of collusion in mechanisms under asymmetric information. We develop a methodology to analyze collusion as an informed principal problem. First, if collusion occurs after the agents accept or reject the principal's offer; the dominant-strategy implementation of the optimal contract without collusion is collusion proof. Second, we look at a different timing, assuming that the agents' decision to accept or reject the principal's offer is taken after collusion, so agents can collude on their participation decisions. We also assume that the collusion offer includes a punishment strategy, to be used whenever the other agent rejects the side contract. We establish the conditions that have to be satisfied for a contract to be collusion proof and we show that the optimal contract without collusion is no longer collusion proof. The optimal collusion proof contract is asymmetric, both in transfers and in quantities.

Suggested Citation

  • Lucia Quesada, 2005. "Collusion as an Informed Principal Problem," Game Theory and Information 0504002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0504002
    Note: Type of Document - pdf; pages: 40
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/game/papers/0504/0504002.pdf
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    Citations

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    Cited by:

    1. Nicolas Gruyer, 2009. "OPTIMAL AUCTIONS WHEN A SELLER IS BOUND TO SELL TO COLLUSIVE BIDDERS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 835-850, December.
    2. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
    3. Vasiliki Skreta, 2011. "On the informed seller problem: optimal information disclosure," Review of Economic Design, Springer;Society for Economic Design, vol. 15(1), pages 1-36, March.
    4. Leonardo Felli, 1996. "Preventing Collusion Through Discretion," STICERD - Theoretical Economics Paper Series /1996/303, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Che,Y.-K. & Kim,J., 2004. "Collusion-proof implementation of optimal mechanisms," Working papers 4, Wisconsin Madison - Social Systems.
    6. Cécile Aubert & Jérôme Pouyet, 2006. "Incomplete regulation, market competition and collusion," Review of Economic Design, Springer;Society for Economic Design, vol. 10(2), pages 113-142, August.
    7. repec:eee:jetheo:v:170:y:2017:i:c:p:319-345 is not listed on IDEAS
    8. Bardey, David & Li, Sanxi & Wu, Yaping, 2015. "Health Care Insurance Payment Policy when the Physician and Patient May Collude," TSE Working Papers 15-572, Toulouse School of Economics (TSE).
    9. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Arbitrage: On the Role of Correlation," MPRA Paper 41207, University Library of Munich, Germany.
    10. Felli, Leonardo & Hortala-Vallve, Rafael, 2016. "Collusion, Blackmail and Whistle-Blowing," Quarterly Journal of Political Science, now publishers, vol. 11(3), pages 279-312, October.
    11. Jansen, Jos & Jeon, Doh-Shin & Menicucci, Domenico, 2008. "The organization of regulated production: Complementarities, correlation and collusion," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 327-353, January.
    12. repec:bla:worlde:v:40:y:2017:i:8:p:1687-1706 is not listed on IDEAS

    More about this item

    Keywords

    Collusion; Informed Principal; Mechanism Design;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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