Ratifiability of efficient collusive mechanisms in second-price auctions with participation costs

Guofu Tan, Okan Yilankaya

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

We investigate whether efficient collusive bidding mechanisms are affected by potential information leakage from bidders' decisions to participate in them within the independent private values setting. We apply the concept of ratifiability introduced by Cramton and Palfrey [Cramton, P.C., Palfrey, T.R., 1995, Ratifiable mechanisms: Learning from disagreement, Games Econ. Behav. 10 (2), 255-283] and show that when the seller uses a second-price auction with participation costs, the standard efficient cartel mechanisms such as pre-auction knockouts analyzed in the literature will not be ratified by cartel members. A high-value bidder benefits from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from participating in the seller's auction.

Original languageEnglish
Pages (from-to)383-396
Number of pages14
JournalGames and Economic Behavior
Volume59
Issue number2
DOIs
Publication statusPublished - May 1 2007

Keywords

  • Auctions
  • Collusion
  • Ratifiability

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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