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How to Auction a Bottleneck Monopoly When Underhand Vertical Agreements are Possible

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  • Eduardo M. R. A. Engel
  • Ronald D. Fischer
  • Alexander Galetovic

Abstract

A seaport is awarded in a Demsetz auction to the operator bidding the lowest cargo-handling fee. The competitive auction is irrelevant if the port operator integrates into shipping and sabotages competitors, thus providing a motive for a ban on vertical integration. The paper shows that such a ban increases welfare even when underhand agreements with shippers are possible. For this result to attain, the auction must be combined with a sufficiently high floor on the cargo-handling fee that operators can bid in the auction. With no floor, a Demsetz auction is worse than an unregulated bottleneck monopoly. Copyright Blackwell Publishing Ltd. 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 52 (2004)
Issue (Month): 3 (09)
Pages: 427-455

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Handle: RePEc:bla:jindec:v:52:y:2004:i:3:p:427-455

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Cited by:
  1. Theys, Christophe & Notteboom, Theo E. & Pallis, Athanasios A. & De Langen, Peter W., 2010. "The economics behind the awarding of terminals in seaports: Towards a research agenda," Research in Transportation Economics, Elsevier, vol. 27(1), pages 37-50.
  2. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2005. "Highway franchising and real estate values," Journal of Urban Economics, Elsevier, vol. 57(3), pages 432-448, May.

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