Perfect bidder collusion through bribe and request

TL;DR

This paper demonstrates that in a dynamic second-price auction, a bidder can reliably establish collusion through a strategic offer involving bribes and requests, resulting in guaranteed success in equilibrium.

Contribution

It introduces a model where collusion via bribes and requests is always successful in equilibrium, extending previous models by showing robust collusion strategies in dynamic settings.

Findings

Collusion success probability is always one in the equilibrium.

Expected payoffs for colluding bidders are higher than in previous models.

Robust equilibrium exists for all types of initiators.

Abstract

We study collusion in a second-price auction with two bidders in a dynamic environment. One bidder can make a take-it-or-leave-it collusion proposal, which consists of both an offer and a request of bribes, to the opponent. We show that there always exists a robust equilibrium in which the collusion success probability is one. In the equilibrium, for each type of initiator the expected payoff is generally higher than the counterpart in any robust equilibria of the single-option model (Es\"{o} and Schummer (2004)) and any other separating equilibria in our model.