Mechanism Design under Collusion and Uniform Transfers

Doh-Shin Jeon

Journal of Public Economic Theory, 2005, vol. 7, issue 4, 641-667

Abstract: We study mechanism design under collusion focusing on the transaction costs in coalition formation created by asymmetric information among agents. In our setting, the regulator is constrained to use uniform transfers and this generates room for collusion between the regulated firms. We first show that when the gains from collusion are smaller than a threshold, the firms fail to realize the gains because of transaction costs. When the gains are larger than the threshold, we characterize the optimal collusion‐proof mechanism. Finally, we show that when the regulator is constrained to use uniform transfers, the collusion‐proofness principle does not hold.

Date: 2005
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https://doi.org/10.1111/j.1467-9779.2005.00238.x

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Working Paper: Mechanism Design under Collusion and Uniform Transfers (2015)
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