Optimal collusion-proof auctions

Yeon-Koo Che, Columbia University
Jinwoo Kim, Yonsei University

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Discussion Paper 0506-22

Abstract

We study an optimal weak collusion-proof auction in an environment where 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 auction --- i.e., the optimal auction in a collusion-free environment --- 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 outcome is not weak collusion-proof implementable, 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.