EconPapers    
Economics at your fingertips  
 

Collusion and signaling in auctions with interdependent values

Peter Troyan

Journal of Economic Theory, 2017, vol. 170, issue C, 319-345

Abstract: The standard approach to collusion in auctions posits an uninformed, disinterested third party who, prior to the auction, designs and implements a collusive mechanism. In environments where collusion agreements are likely to be both proposed and executed by the involved parties, this approach may neglect information leakages from simply a proposal to collude. We consider a model of collusion where one informed bidder proposes to another, as in Eső and Schummer (2004). We allow for general interdependent values and affiliated signals. In contrast to third party modeling approaches, collusion is inefficient from both a social perspective (except for the case of pure common values) and from the perspective of the ring. Both bidders are better off than without colluding, but the surplus extracted from the seller is distributed asymmetrically between the bidders. The potential for information leakage from proposing is bad for low types, who reveal that they are weak competitors, but is advantageous for high types, because they are able to signal their strength. We identify a so-called “briber's curse,” whereby acceptance of a proposal causes the proposer to downgrade her expected value for the object. When there is additional competition in the form of bidders outside of the cartel, the briber's curse significantly harms cartel profits and raises seller revenues.

Keywords: Collusion; Second-price; Auction; Interdependent values; Signaling (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053117300625
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:170:y:2017:i:c:p:319-345

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-01-25
Handle: RePEc:eee:jetheo:v:170:y:2017:i:c:p:319-345