Bidder Cartels Can Help the Seller

Economics

Further details

Common wisdom and the theoretical literature generally holds the view that any kind of cooperationg among buyers in auctions can only harm the seller. In this paper, we show that this is not true in auctions where the sale of the object confers a benefit to all potential bidders. We model is a modification of the standard independent private values paradigm that assumes a sale confers a positive externality to all potential bidders. Corporate takeover battles, repeated auctions and many other vertical contracting problems yield such a model as a reduced form. We show that if the seller cannot coerce bidders to participate and if the externalities are not insignificant, then in a revenue maximizing selling procedure, the seller invites one joint bid (from the all-inclusive bidder cartel).