Bribing and signaling in second price auctions

We examine a specific form of collusive behavior in a 2-bidder, second-price auction (with independent private values). One bidder may bribe the other to commit to stay away from the auction (i.e., submit a bid of zero). First, we consider the situation where only a bribe of a fixed size may be offered. We show that there exist only two equilibria: one where bribing occurs with positive probability, and one where bribing does not occur. We show that an intuitive refinement of out-of-equilibrium beliefs rules out the no-bribe equilibrium. Second, we consider the case in which bribes of any size may be offered. We show that there is a unique equilibrium in continuous and weakly monotonic bribing strategies. In both setups (fixed or variable bribes) the bribing equilibrium leads to inefficient allocation of the good with positive probability.