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Bribing in second-price auctions

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Abstract

An IPV 2-bidder second-price auction is preceded by two rounds of bribing: prior to the auction each bidder can try to bribe his rival to depart from the auction, so that he (the briber) will become the sole participant and obtain the good for the reserve price. Bribes are offered sequentially according to an exogenously given order - there is a first mover and a second mover. I characterize the unique efficient collusive equilibrium in monotonic strategies; in it, the second mover extracts the entire collusive gain. This equilibrium remains an equilibrium even when valuations are interdependent, and if they are separable then the full surplus extraction result continues to hold. Additionally, a family of pooling equilibria is studied, in which all the types of the first mover offer the same bribe.

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  • Rachmilevitch, Shiran, "undated". "Bribing in second-price auctions," Working Papers WP2011/7, University of Haifa, Department of Economics.
    • Handle: RePEc:haf:huedwp:wp201107
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    Cited by:

    1. Jingfeng Lu & Zongwei Lu & Christian Riis, 2021. "Peace through bribing," Papers 2107.11575, arXiv.org, revised Apr 2023.
    2. Deng, Shanglyu, 2023. "Speculation in procurement auctions," Journal of Economic Theory, Elsevier, vol. 212(C).
    3. Doğan, Serhat & Karagözoğlu, Emin & Keskin, Kerim & Sağlam, Çağrı, 2021. "Bribing in team contests," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 1-9.
    4. Troyan, Peter, 2017. "Collusion and signaling in auctions with interdependent values," Journal of Economic Theory, Elsevier, vol. 170(C), pages 319-345.
    5. Lu, Jingfeng & Lu, Zongwei & Riis, Christian, 2021. "Perfect bidder collusion through bribe and request," Games and Economic Behavior, Elsevier, vol. 129(C), pages 1-14.
    6. Pacharasut Sujarittanonta & Ajalavat Viriyavipart, 2021. "Deterring collusion with a reserve price: an auction experiment," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 536-557, June.

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    More about this item

    Keywords

    Second-price auctions; collusion; bribing; signaling; surplus extraction;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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