Rafifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs

We investigate whether e¢ cient collusive bidding mechanisms are a¤ected by potential information leakage from bidders decisions to participate in them within the independent private values setting. We apply the concept of rati ability introduced by Cramton and Palfrey (1995) and show that when the seller uses a second-price auction with participation costs, the standard e¢ cient cartel mechanisms such as preauction knockouts analyzed in the literature will not be rati ed by cartel members. A high-value bidder bene ts from vetoing the cartel mechanism since doing so sends a credible signal that she has high value, which in turn discourages other bidders from bidding in the seller s auction