On the ratifiability of efficient cartel mechanisms in first-price auctions with participation costs and information leakage

Abstract

Abstract This paper addresses the ratifiability of an efficient cartel mechanism in a first-price auction. When a seller uses a first-price sealed-bid auction, the efficient all-inclusive cartel mechanism will no longer be ratifiable in the presence of both participation costs and potential information leakage. A bidder whose value is higher than a cut-off in the cartel will have an incentive to leave the cartel, thereby sending a credible signal of his high value, which discourages other bidders from participating in the seller’s auction. However, the cartel mechanism is still ratifiable where either the participation cost or information leakage is absent.