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Weak cartels and collusion-proof auctions

Yeon-Koo Che (), Daniele Condorelli and Jinwoo Kim

Journal of Economic Theory, 2018, vol. 178, issue C, 398-435

Abstract: We study private value auctions in which bidders may collude without using side-payments. In our model, bidders coordinate their actions to achieve an outcome that interim-Pareto dominates the noncooperative outcome. We characterize auctions that are collusion-proof in the sense that no such coordination opportunities exist, and show that the efficient and revenue maximizing auctions are not collusion-proof unless all bidders exhibit a concave distribution of valuations. We then solve for revenue maximizing collusion-proof auctions. If distributions of valuations are symmetric and single-peaked, the optimal selling mechanism is a standard auction with a minimum bid, followed by sequential negotiation in case no bidder bids above the minimum bid.

Keywords: Weak cartels; Weakly collusion-proof auctions; Optimal auctions (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jetheo:v:178:y:2018:i:c:p:398-435