Abstract:
In this paper we first develop a model of cooperative bidder behavior at a single-object (nondivisible) second-price auction within the IPV framework assuming risk neutrality of the bidders and the auctioneer. A central issue of the modeling is the determination of a scheme, consistent with the stylized facts, that is used by the coalition to formulate a bid or bids to be submitted at the main auction. In Section III we identify such a scheme, which we call the second-price preauction knockout (PAKT). The second-price PAKT, unlike standard cartel schemes, has a very desirable property: it is an incentive-efficient and durable mechanism. It provides incentives for the members of teh cartel to cooperate. Two results emerge from our second-price model.
