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Optimal collusion-proof auctions

Author

Listed:
  • Che, Yeon-Koo
  • Kim, Jinwoo
Abstract
We study an optimal collusion-proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best auction -- i.e., the optimal auction in a collusion-free environment -- can be made collusion-proof, if at least one bidder is not collusive, or there are multiple bidding cartels, or the second-best outcome involves a non-trivial probability of the object not being sold. Regardless, optimal collusion-proof auction prescribes non-trivial exclusion of collusive bidders, i.e., a refusal to sell to any collusive bidder with positive probability.

Suggested Citation

  • Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
    • Handle: RePEc:eee:jetheo:v:144:y:2009:i:2:p:565-603
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    More about this item

    Keywords

    Collusion on participation Subgroup collusion Multiple bidding cartels An exclusion principle;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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