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On the Failure of the Linkage Principle with Colluding Bidders

37 Pages Posted: 14 Jul 2017  

Gyula Seres

Tilburg Law and Economics Center (TILEC); Tilburg School of Economics and Management

Date Written: July 12, 2017

Abstract

One of the fundamental results of auction theory is the Linkage Principle, which states that the seller’s expected revenue is enhanced by ex ante full public disclosure of information about the value of the good. Previous literature has established that the Principle fails in dynamic settings. We argue that information provision may also sustain collusion in single-unit auctions, thus harming the auctioneer. Using a model with private and common value components, we point out that disclosure curtails common value uncertainty, making communication between cartel members incentive compatible. We also show that collusion is feasible if and only if information provision reaches an interior threshold value.

Keywords: Auction, Bidding Ring, Cartel, Information Asymmetry

JEL Classification: C72, D44, D82, L41

Suggested Citation

Seres, Gyula, On the Failure of the Linkage Principle with Colluding Bidders (July 12, 2017). TILEC Discussion Paper No. 2017-026. Available at SSRN: https://ssrn.com/abstract=3002353

Gyula Seres (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

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