A simple model of coalitional bidding |
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Authors: | In-Koo Cho Kevin Jewell Rajiv Vohra |
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Institution: | (1) Department of Economics, University of Illinois, Champaign, Illinois 61820, USA (e-mail: inkoocho@uiuc.edu), US;(2) Cornerstone Research, Boston, Massachusetts 02115, USA (e-mail: ah309@freenet.buffalo.edu), US;(3) Department of Economics, Brown University, Providence, Rhode Island 02912, USA (e-mail: Rajiv_Vohra@brown.edu), US |
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Abstract: | Summary. We analyze a model of coalitional bidding in which coalitions form endogenously and compete with each other. Since the nature
of this competition influences the way in which agents organize themselves into coalitions, our main aim is to characterize
the equilibrium coalition structure and the resulting bids. We do so in a simple model in which the seller may have good reason
to allow joint bidding. In particular, we study a model in which the agents are budget constrained, and are allowed to form
coalitions to pool their finances before engaging in the first price auction. We show that if the budget constraint is very
severe, the equilibrium coalition structure consists of two coalitions, one slightly larger than the other; interestingly,
it is not the grand coalition. This equilibrium coalition structure is one which yields (approximately) the maximum expected
revenue. Thus the seller can induce the optimal (revenue maximizing) degree of cooperation among budget constrained buyers
simply by permitting them to collude.
Received: June 25, 1999; revised version: November 13, 2000 |
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Keywords: | and Phrases: Auctions Coalitions Collusion Joint bidding |
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