Collusion via Information Sharing and Optimal Auctions

Abstract

This paper studies collusion via certified sharing of information in the context of mechanism design. The model of collusion builds on Aumann’s (1976) description of knowledge. A cartel can agree to collude on a contract if it is common knowledge within the cartel that the contract is incentive compatible and individually rational. Robustness of mechanisms to collusion via information sharing is defined as the impossibility of an agreement to collude. Robust mechanisms are characterized in a number of settings where a varying number of agents can commit to side transfers. Finally, the characterization is used in a simple IPV setting to construct an auction mechanism that is both optimal and robust to collusion.