Collusion in Auctions with Externalities

Posted: 10 Sep 1998

See all articles by Bernard Caillaud

Bernard Caillaud

CERAS-ENPC; Centre for Economic Policy Research (CEPR)

Philippe Jehiel

University College London - Department of Economics; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Abstract

In standard auctions, collusion among buyers eliminates bidding competition despite informational asymmetries. Collusion can, however, be imperfect when the situation involves "externalities" among buyers, that is, when a buyer is worse off if one rival wins the good rather than if nobody gets it. For intermediate values of the externality and under various objective functions, the seller finds it optimal to design an auction that leads, in equilibrium, to a collusive outcome that is ex post inefficient for the group of buyers; an ex ante incentive-efficient collusion mechanism for the buyers is characterized in this situation.

JEL Classification: D44

Suggested Citation

Caillaud, Bernard and Jehiel, Philippe, Collusion in Auctions with Externalities. Available at SSRN: https://ssrn.com/abstract=109812

Bernard Caillaud (Contact Author)

CERAS-ENPC ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 44 58 28 75 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Philippe Jehiel

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4458 2873 (Phone)
+33 1 4458 2880 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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