Collusion in one-shot second-price auctions (Q2490709)

The authors consider the problem of collusion in one-shot second price auctions. They have shown that despite of the barriers to collusion (difficulties with the verification that colluding members behave in accordance to their agreement and the possibility of use of shill bidders) a simple side payment mechanism, depending only on the auction price, induces a successful collusion. Two scenarios are analyzed. In the first one, all bids are published, and in the second, only the auction price is published. The first considered model is similar to that of \textit{P. Esö} and \textit{J. Schummer} [Games Econ. Behav. 47, No. 2, 299--324 (2004; Zbl 1068.91022)] but allows for the use of shill bidders. It is proven that in such situations a perfect Bayesian equilibrium satisfying the Intuitive Criterion always exists and the allocation of the good is always ex-post efficient. For the second case, it is shown that the proponent can make a cash offer contingent on the auction price which induces a collusion, eliminates the difficulties mentioned above, and guarantees that the proponent obtains ex-post a non-negative payoff (ignoring the bidding cost) irrespective of the strategy of the respondent. In the both scenarios, the colluding parties are ex-ante strictly better off compared with the competitive case, irrespective of their types.