COLLUSION IN SECOND PRICE AUCTIONS WITH HETEROGENEOUS BIDDERS

We show that efficient collusion by any subset of bidders in second price private value auctions is possible, even when the bidders are heterogeneous. An important property of efficient collusion is that a bidder's net payoff from participating in collusion is independent of her valuation. We show that the cooperative game whose characteristic function (evaluated at a coalition) is the ex ante collusive surplus (of that coalition) has a nonempty core. A feature of more technical interest is the mechanism characterization when the private information of agents does not enter in a linear (or even piecewise linear) manner. © 1991.