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Title:Collusive communication schemes in a first-price auction PDF Logo
Authors:Azacis, Helmuts
Vida, Péter
Issue Date:2012
Series/Report no.:Cardiff Economics Working Papers E2012/11
Abstract:We study optimal bidder collusion at first-price auctions when the collusive mechanism only relies on signals about bidders' valuations. We build on Fang and Morris (2006) when two bidders have low or high private valuation of a single object and additionally each receives a private noisy signal from an incentiveless center about the opponent's valuation. We derive the unique symmetric equilibrium of the first price auction for any symmetric, possibly correlated, distribution of signals, when these can only take two values. Next, we find the distribution of 2-valued signals, which maximizes the joint payoffs of bidders. We prove that allowing signals to take more than two values will not increase bidders' payoffs if the signals are restricted to be public. We also investigate the case when the signals are chosen conditionally independently and identically out of n = 2 possible values. We demonstrate that bidders are strictly better off as signals can take on more and more possible values. Finally, we look at another special case of the correlated signals, namely, when these are independent of the bidders' valuations. We show that in any symmetric 2-valued strategy correlated equilibrium, the bidders bid as if there were no signals at all and, hence, are not able to collude.
Subjects:bidder-optimal signal structure
Collusion
(Bayes) correlated equilibrium
First price auction
Public and private signals
JEL:D44
D82
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers

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