In a 2 player dollar auction, I can offer you 50c not to bid, and then bid 50c myself. If you outbid me with 51c, then you only gain 49c.
For this to work, we need trust that I will pay you iff you don’t bid. Either I pay you early, and then trust you not to bid, or you don’t bid, and trust me to pay later, or we both trust an escrow.
Coase theorem doesn’t hold if either family would take the money, and then try to move the river anyway.
In a 2 player dollar auction, I can offer you 50c not to bid, and then bid 50c myself. If you outbid me with 51c, then you only gain 49c.
For this to work, we need trust that I will pay you iff you don’t bid. Either I pay you early, and then trust you not to bid, or you don’t bid, and trust me to pay later, or we both trust an escrow.
Coase theorem doesn’t hold if either family would take the money, and then try to move the river anyway.