A Collusion Proof Second-Price Auction

Collusive bidding in auctions jeopardizes the revenue to the seller. This paper describes a way to preclude strong and tacit subgroup collusion in a non-repeated environment, when cartels can commit to transfer exchange ex post, but cannot reallocate. Robustness is due to an optional assignment rule in a sealed-bid Vickrey auction, which is not reached in equilibrium, but serves as a credible threat to any collusive agreement- and rules out surplus-generating manipulations of bids. In the absence of benefits to collusion the backward-inducing bidders will not engage into collusive negotiations.