Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries...")
Nicolas Gruyer
Abstract
Open-access reader
Nicolas Gruyer
Abstract
Open-access reader
I consider optimal auctions for a seller who is bound to sell a single item to one of two potential buyers, organized in a `well-coordinated' cartel. I show that, even though the seller cannot deter collusion, he can optimally accommodate it by employing a simple mechanism which imposes an inefficient allocation on the bidders unless they pay a sufficiently high amount to avoid it.
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I consider optimal auctions for a seller who is bound to sell a single item to one of two potential buyers, organized in a `well-coordinated' cartel. I show that, even though the seller cannot deter collusion, he can optimally accommodate it by employing a simple mechanism which imposes an inefficient allocation on the bidders unless they pay a sufficiently high amount to avoid it.
Key concepts: Collusion, Common value auction, Cartel, Microeconomics, Simple (philosophy), Economics, Forward auction, Mechanism design