Games and Economic Behavior

Volume 129, September 2021, Pages 1-14

Perfect bidder collusion through bribe and request

Jingfeng Lu^a Zongwei Lu^b Christian Riis^c

a Department of Economics, National University of Singapore, Singapore

b School of Economics, Shandong University, China

c Department of Economics, BI Norwegian Business School, Norway

We study collusion in a second-price auction with two bidders in a dynamic environment. One bidder can make a take-it-or-leave-it collusion proposal, which consists of both an offer and a request of bribes, to the opponent. We show that there always exists a robust equilibrium in which the collusion success probability is one. In the equilibrium, for each type of initiator the expected payoff is generally higher than the counterpart in any robust equilibria of the single-option model (Esö and Schummer (2004)) and any other separating equilibria in our model.