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OPTIMAL AUCTIONS WHEN A SELLER IS BOUND TO SELL TO COLLUSIVE BIDDERS

Authors


  • *I thank the Editor, anonymous referees and Jacques Crémer for helpful comments and suggestions. I bear sole responsibility for any remaining errors.

Abstract

I consider optimal auctions for a seller who is bound to sell a single item to one of two potential buyers, organized in a ‘well-coordinated’ cartel. I show that, even though the seller cannot deter collusion, he can optimally accommodate it by employing a simple mechanism which imposes an inefficient allocation on the bidders unless they pay a sufficiently high amount to avoid it.

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