Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2015:1: Bidding Rings: A Bargaining Approach

Kalyan Chatterjee (), Manipushpak Mitra () and Conan Mukherjee ()
Additional contact information
Kalyan Chatterjee: Department of Economics, Pennsylvania State University
Manipushpak Mitra: Economic Research Unit, Indian Statistical Institute, Kolkata, India
Conan Mukherjee: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: We address the issue of bidder ring formation in single and multi-unit Vickrey auctions. We address this issue in a bargaining game set up under the assumption that valuation of bidders is commonly known only amongst themselves. In the single unit case, we show that the equilibrium coalition structure can only be an order preserving r-ring, that includes the winner and the top (r-1) losers. In the multiple units case, we specify sufficient conditions for formation of an interesting class of equilibrium coalition structures, which we call single winner ring with free riding, where exactly one winner colludes with all the losers and generates maximum possible bidders' surplus, and, depending on the protocol, the remaining winners free ride either by staying alone or by colluding in pairs.

Keywords: Bidding rings; Bargaining games; Coalition formation; Auctions

JEL-codes: C71; C72; C78; D44; L41

28 pages, First version: January 16, 2015. Revised: January 17, 2016.

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