Collusion mechanisms in hybrid auctions

This paper concerns the feasibility of collusive mechanisms. Our work presents a hybrid auction model which shows that the existence of an incentive compatible bid coordination mechanism is sensitive with respect to the form of information asymmetry between cartel members. We conclude that while a mechanism always exists in a neighborhood of the pure private value model, it fails to exist if the valuations are sufficiently correlated. As a consequence, despite earlier findings, information has an ambiguous effect on expected revenue, if collusion is possible. The expected revenue function is discontinuous with respect to the common uncertainty in second-price sealed-bid auctions and not increasing on its whole range. Our conclusion differs slightly if the ring is all-inclusive and depends on the number of outsider bidders. The effect of an outsider is ambiguous, whereas more bidding ring members reduce the parameter space on which incentive compatible mechanism exists. We also find that collusion might increase efficiency in a second-price auction.