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On bidding markets: the role of competition

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  • Gino Loyola

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Abstract

This paper analyzes the effects of industrial concentration on bidding behaviour and hence, on the seller´s expected proceeds. These effects are studied under the CIPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into four types: a competition effect, an inference effect, a winner´s curse effect and a sampling effect. The properties of these effects are discussed and conditions for (non) monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we083318.

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Date of creation: Jan 2008
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Handle: RePEc:cte:werepe:we083318

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Keywords: Auctions; Competition; Affiliation; Inference;

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  1. Ken Hendricks & Robert Porter & Guofu Tan, 2003. "Bidding Rings and the Winner's Curse: The Case of Federal Offshore Oil and Gas Lease Auctions," NBER Working Papers 9836, National Bureau of Economic Research, Inc.
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  6. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.
  7. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  8. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Compte, Olivier, 2000. "On the Value of Competition in Procurement Auctions," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0829, Econometric Society.
  10. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
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  17. Harry J. Paarsch & Han Hong, 2006. "An Introduction to the Structural Econometrics of Auction Data," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262162350, December.
  18. Waehrer, Keith, 1999. "Asymmetric private values auctions with application to joint bidding and mergers," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(3), pages 437-452, April.
  19. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, Elsevier, vol. 3(4), pages 467-486, November.
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  22. Vlad Mares & Mikhael Shor, 2008. "Industry concentration in common value auctions: theory and evidence," Economic Theory, Springer, Springer, vol. 35(1), pages 37-56, April.
  23. Luciano I. de Castro, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," Economics Working Papers we074622, Universidad Carlos III, Departamento de Economía.
  24. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, Elsevier, vol. 7(2), pages 193-220, September.
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Cited by:
  1. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 21(2), pages 203-216.

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