A simple model of coalitional bidding

In Koo Cho, Kevin Jewell, Rajiv Vohra

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)435-457
Number of pages23
JournalEconomic Theory
Volume19
Issue number3
DOIs
StatePublished - 2002 Apr 1

Keywords

  • Auctions
  • Coalitions
  • Collusion
  • Joint bidding

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