2006 Reports

Optimal collusion-proof auctions

Che, Yeon-Koo; Kim, Jinwoo

We study an optimal weak collusion-proof auction in an environment where a subset (or 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 outcome - i.e., the noncollusive optimum - can be made weak collusion-proof, if at least one bidder is not collusive, or there are multiple bidding rings, or the second-best outcome involves a nontrivial probability of the object not being sold. In case the second-best is not weak collusion proof, we characterize an optimal weak collusion-proof auction. This auction involves nontrivial exclusion of collusive bidders - i.e., the object is not sold to any collusive bidder with positive probability.