Differential Payments within a Bidder Coalition and the Shapley Value

Abstract

Bidder coalitions at English auctions frequently distribute collusive gains among members via a secondary auction of "knockout." When coalition members are sufficiently heterogeneous, nested coalition structures are observed in which a knockout is conducted at each level of nesting. The nested knockout's characteristics are investigated. Within many settings, the authors find that the expected payments to coalition members via the nested knockout equal the Shapley value. Incentive compatibility problems of the nested knockout are also analyzed. Copyright 1990 by American Economic Association.

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