Collusion-Proof Mechanism Design in Two-Agent Nonlinear Pricing Environments

Dawen Meng and Guoqiang Tian

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the cost requirement for two-agent collusion-proof mechanism design. Unlike the existing results for general environments with three or more agents, it is shown that collusive behavior cannot be prevented freely in two-agent nonlinear pricing environments with correlated types. Reporting manipulation calls for distortions away from the first-best efficiency, and arbitrage calls for further distortion. Moreover, we show that the distortionary patterns are quite different for positive and negative correlations. The second-best outcome is attainable as negative correlation is vanishing, while the limit of collusion-proof efficiency is strictly lower than the second-best level as positive correlation goes to zero. Allowing arbitrage therefore breaks the continuity between correlated and uncorrelated types.

Keywords: Nonlinear pricing; collusion-proof; mechanism design; arbitrage; correlation (search for similar items in EconPapers)
JEL-codes: D42 D62 D82 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-cta and nep-mic
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