Two-agent collusion-proof implementation with correlation and arbitrage
Dawen Meng (),
Guoqiang Tian and
Zhe Yang ()
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Dawen Meng: Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SHUFE)
Zhe Yang: Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SHUFE)
Review of Economic Design, 2017, vol. 21, issue 3, 177-229
Abstract This paper characterizes the optimal collusion-proof mechanism in a two-agent nonlinear pricing environment. Our model allows agents to have correlated types and to reallocate their total purchases among themselves. We show that, under strongly negative correlation, the coalition will, sometimes, be torn apart at no cost. Under positive or weakly negative correlations, however, the threat of collusion forces the principal to distort allocation away from the first-best level obtained without collusion. We also show that, in contrast to the result of Laffont and Martimort (Econometrica 68:309–342, 2000), when the correlation is almost perfectly positive, the possibility of arbitrage prevents the principal from approaching the first-best efficiency.
Keywords: Nonlinear pricing; Collusion-proof implementation; Mechanism design; Arbitrage; Correlation; D42; D62; D82 (search for similar items in EconPapers)
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