On ring formation in auctions
Review articleOpen access

AbstractIt is assumed that first ring members bid in a preauction or knockout and that then only the rings representative actively bids in the subsequent main auction. The rules must specify for every vector of bids who represents the cartel in the main auction, which transfers are paid to other ring members, who wins the main auction, and finally which price has to be paid. Most of the rules can be derived instead of being imposed by requiring envy-free net trades with respect to bids. Although they could be uniquely determined by an additional incentive constraint, we try to find out for all envy-free auction mechanisms whether they are profitable, i.e. every type of every cartel member gains from ring formation, and coalition proof. The case when the ring representative has to repeat his preauction bid in the main auction is analysed in more detail than the case when these two bids are independent.

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