IDEAS home Printed from https://ideas.repec.org/a/spr/reecde/v21y2017i3d10.1007_s10058-017-0204-x.html
   My bibliography  Save this article

Two-agent collusion-proof implementation with correlation and arbitrage

Author

Listed:
  • Dawen Meng

    (Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SHUFE))

  • Guoqiang Tian

    (Texas A&M University)

  • Zhe Yang

    (Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SHUFE))

Abstract

This paper characterizes the optimal collusion-proof mechanism in a two-agent nonlinear pricing environment. Our model allows agents to have correlated types and to reallocate their total purchases among themselves. We show that, under strongly negative correlation, the coalition will, sometimes, be torn apart at no cost. Under positive or weakly negative correlations, however, the threat of collusion forces the principal to distort allocation away from the first-best level obtained without collusion. We also show that, in contrast to the result of Laffont and Martimort (Econometrica 68:309–342, 2000), when the correlation is almost perfectly positive, the possibility of arbitrage prevents the principal from approaching the first-best efficiency.

Suggested Citation

  • Dawen Meng & Guoqiang Tian & Zhe Yang, 2017. "Two-agent collusion-proof implementation with correlation and arbitrage," Review of Economic Design, Springer;Society for Economic Design, vol. 21(3), pages 177-229, September.
    • Handle: RePEc:spr:reecde:v:21:y:2017:i:3:d:10.1007_s10058-017-0204-x
    DOI: 10.1007/s10058-017-0204-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10058-017-0204-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10058-017-0204-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dequiedt, Vianney, 2007. "Efficient collusion in optimal auctions," Journal of Economic Theory, Elsevier, vol. 136(1), pages 302-323, September.
    2. Dominique M. Demougin & Devon A. Garvie, 1991. "Contractual Design with Correlated Information under Limited Liability," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 477-489, Winter.
    3. Aviad Heifetz & Zvika Neeman, 2006. "On the Generic (Im)Possibility of Full Surplus Extraction in Mechanism Design," Econometrica, Econometric Society, vol. 74(1), pages 213-233, January.
    4. Jérôme Pouyet, 2002. "Collusion Under Asymmetric Information: The Role of the Correlation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 543-572, October.
    5. Yeon-Koo Che & Jinwoo Kim, 2006. "Robustly Collusion-Proof Implementation," Econometrica, Econometric Society, vol. 74(4), pages 1063-1107, July.
    6. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 23-38.
    7. Doh-Shin Jeon & Domenico Menicucci, 2005. "Optimal Second-Degree Price Discrimination and Arbitrage: On the Role of Asymmetric Information Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 337-360, Summer.
    8. Dilip Mookherjee & Masatoshi Tsumagari, 2004. "The Organization of Supplier Networks: Effects of Delegation and Intermediation," Econometrica, Econometric Society, vol. 72(4), pages 1179-1219, July.
    9. Jean-Jacques Laffont & David Martimort, 1997. "Collusion under Asymmetric Information," Econometrica, Econometric Society, vol. 65(4), pages 875-912, July.
    10. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
    11. Danilov, Vladimir, 1992. "Implementation via Nash Equilibria," Econometrica, Econometric Society, vol. 60(1), pages 43-56, January.
    12. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    13. Moore, John & Repullo, Rafael, 1990. "Nash Implementation: A Full Characterization," Econometrica, Econometric Society, vol. 58(5), pages 1083-1099, September.
    14. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
    15. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    16. Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
    17. ,, 2008. "Auction design in the presence of collusion," Theoretical Economics, Econometric Society, vol. 3(3), September.
    18. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guo, Huiyi, 2024. "Collusion-proof mechanisms for full surplus extraction," Games and Economic Behavior, Elsevier, vol. 145(C), pages 263-284.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meng, Dawen & Tian, Guoqiang, 2014. "Collusion-Proof Mechanism Design in Two-Agent Nonlinear Pricing Environments," MPRA Paper 57931, University Library of Munich, Germany.
    2. Meng, Dawen & Tian, Guoqiang, 2008. "Nonlinear Pricing with Arbitrage: On the Role of Correlation," MPRA Paper 41207, University Library of Munich, Germany.
    3. Nicolas Gruyer, 2008. "Optimal Auctions when a seller is bound to sell to collusive bidders (new version of "using lotteries ...")," Economics Working Papers 06, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
    4. Jansen, Jos & Jeon, Doh-Shin & Menicucci, Domenico, 2008. "The organization of regulated production: Complementarities, correlation and collusion," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 327-353, January.
    5. Nicolas Gruyer, 2009. "Optimal Auctions When A Seller Is Bound To Sell To Collusive Bidders," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 835-850, December.
    6. Celik, Gorkem, 2009. "Mechanism design with collusive supervision," Journal of Economic Theory, Elsevier, vol. 144(1), pages 69-95, January.
    7. Menicucci, Domenico, 2006. "Full surplus extraction by a risk averse seller in correlated environments," Mathematical Social Sciences, Elsevier, vol. 51(3), pages 280-300, May.
    8. Guo, Huiyi, 2024. "Collusion-proof mechanisms for full surplus extraction," Games and Economic Behavior, Elsevier, vol. 145(C), pages 263-284.
    9. Vianney Dequiedt & David Martimort, 2015. "Vertical Contracting with Informational Opportunism," American Economic Review, American Economic Association, vol. 105(7), pages 2141-2182, July.
    10. Asseyer, Andreas, 2016. "Optimal Information Disclosure and Collusion," VfS Annual Conference 2016 (Augsburg): Demographic Change 145779, Verein für Socialpolitik / German Economic Association.
    11. Correia-da-Silva, João, 2020. "Self-rejecting mechanisms," Games and Economic Behavior, Elsevier, vol. 120(C), pages 434-457.
    12. Krajbich, Ian & Camerer, Colin & Rangel, Antonio, 2017. "Exploring the scope of neurometrically informed mechanism design," Games and Economic Behavior, Elsevier, vol. 101(C), pages 49-62.
    13. Mookherjee, Dilip & Motta, Alberto & Tsumagari, Masatoshi, 2020. "Consulting collusive experts," Games and Economic Behavior, Elsevier, vol. 122(C), pages 290-317.
    14. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
    15. Che,Y.-K. & Kim,J., 2004. "Collusion-proof implementation of optimal mechanisms," Working papers 4, Wisconsin Madison - Social Systems.
    16. Faure-Grimaud, Antoine & Reiche, Sönje Kerrin, 2003. "Dynamic Yardstick Regulation," CEPR Discussion Papers 4035, C.E.P.R. Discussion Papers.
    17. Philippe Jehiel & Benny Moldovanu, 2005. "Allocative and Informational Externalities in Auctions and Related Mechanisms," Levine's Bibliography 784828000000000490, UCLA Department of Economics.
    18. Safronov, Mikhail, 2018. "Coalition-proof full efficient implementation," Journal of Economic Theory, Elsevier, vol. 177(C), pages 659-677.
    19. Martin Hellwig, 2015. "Financial Stability and Monetary Policy," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_10, Max Planck Institute for Research on Collective Goods.
    20. Lopomo, Giuseppe & Rigotti, Luca & Shannon, Chris, 2022. "Uncertainty and robustness of surplus extraction," Journal of Economic Theory, Elsevier, vol. 199(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reecde:v:21:y:2017:i:3:d:10.1007_s10058-017-0204-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.