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When can auctions maximize post-auction welfare?

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  • Kasberger, Bernhard

Abstract

I study auctions in which firms bid for licenses that reduce their marginal costs in a post-auction downstream market. When there are three or more firms, I show that the Vickrey–Clarke–Groves (VCG) auction maximizes consumer surplus in dominant strategies if and only if it maximizes producer surplus in dominant strategies. With two firms, the effect on consumer surplus is ambiguous. When the VCG auction does not maximize consumer surplus, I show that consumer surplus can be maximized by adding caps, i.e., restricting the number of licenses a bidder can win. This might lower producer surplus.

Suggested Citation

  • Kasberger, Bernhard, 2023. "When can auctions maximize post-auction welfare?," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:indorg:v:89:y:2023:i:c:s016771872300053x
    DOI: 10.1016/j.ijindorg.2023.102972
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    More about this item

    Keywords

    Allocative externality; Caps; Set-asides; Innovation; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • H82 - Public Economics - - Miscellaneous Issues - - - Governmental Property
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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