Bidding collusion without passive updating (Q2283135)

The article is devoted to the interesting thematics -- ``bidding collusion without passive updating''. To provide a fuller characterization of the possibility of collusion, this paper relaxes the passive updating assumption and examines bidders' incentive to collude before a first-price auction with independent private values. The number of applicants is reduced to two and the side contracts to side transfers are independent of type. The paper characterizes the entire set of bidders' prior distributions given which there exists a type-independent side-transfer proposal that admits a perfect Bayesian equilibrium (PBE) where both bidders accept the proposed transfer for sure (Theorem 1). The set is strictly larger than the one based on the passive updating assumption (Corollary 3). Research can be successfully applied in the areas of: selecting other auction formats and admitting more than two bidders. The investigations are of interest to researchers of this topic.