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The Effects of Mergers in Open-Auction Markets

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  • Waehrer, Keith
  • Perry, Martin K

Abstract

The buyer solicits bids from suppliers with different cost distributions defined by their capacities. The expected market share of each supplier is the ratio of its capacity to the industry capacity. The buyer's optimal reserve price declines with increases in the concentration of the industry. The lower reserve price can partially or fully offset the price effects of a merger. However, a merger always reduces the buyer's welfare. The lower reserve price can also undermine the incentive for larger suppliers to merge and result in stable industry structures for which no further mergers would be profitable. Copyright 2003 by the RAND Corporation.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 34 (2003)
Issue (Month): 2 (Summer)
Pages: 287-304

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Handle: RePEc:rje:randje:v:34:y:2003:i:2:p:287-304

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  1. Encaoua, David & Jacquemin, Alexis, 1980. "Degree of Monopoly, Indices of Concentration and Threat of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 87-105, February.
  2. Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
  3. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  4. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
  5. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November.
  6. Lance Brannman & Luke M. Froeb, 2000. "Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 283-290, May.
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Cited by:
  1. Roberto Burguet & Martin K. Perry, 2003. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
  2. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series 1461, CESifo Group Munich.
  3. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, Elsevier.
  4. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
  5. Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
  6. Vlad Mares & Mikhael Shor, 2008. "Information Concentration in Common Value Environments," Working papers 2012-23, University of Connecticut, Department of Economics.
  7. Maarten Janssen & Vladimir Karamychev, 2013. "Mergers in Bidding Markets," Tinbergen Institute Discussion Papers 13-012/VII, Tinbergen Institute.
  8. Charles J. Thomas & Bart J. Wilson, 2008. "Horizontal Product Differentiation in Auctions and Multilateral Negotiations," Working Papers 08-03, Chapman University, Economic Science Institute.
  9. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.
  10. Steven Tschantz & Philip Crooke & Luke Froeb, 2000. "Mergers in Sealed versus Oral Auctions," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(2), pages 201-212.
  11. Jeddy, Mohamed & Larue, Bruno, 2012. "Mergers, concurrent marketing mechanisms and the performance of sequential auctions," Working Papers 126945, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
  12. Maarten Janssen & Vladimir Karamychev, 2013. "Mergers in Bidding Markets," Tinbergen Institute Discussion Papers 13-012/VII, Tinbergen Institute.
  13. Vlad Mares & Mikhael Shor, 2013. "Information concentration in common value environments," Review of Economic Design, Springer, vol. 17(3), pages 183-203, September.

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