Efficient Competition with Small Numbers - with Applications to Privatisation and Mergers
AbstractThis paper studies competition between a small number of suppliers and a single buyer, (or an auction with a small number of bidders and a single seller) when total demand (supply) is uncertain. It is well known that when a small number of suppliers compete in supply functions the service is not provided efficiently. We show that production efficiency is obtained if suppliers compete in simple two-part bid functions. However, profits are not eliminated. Moreover, the buyers´ (sellers´) decision regarding how much to buy is not efficient. We also show that suppliers (bidders in an auction) always have an incentive to merge (form bidding rings) in this setting.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1999-01.
Length: 21 pages
Date of creation: Jan 1999
Date of revision:
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More information through EDIRC
supply function competition; multi unit auctions; efficiency; deregulation of electricity generation; privatisation; mergers;
Other versions of this item:
- Kala Krishna & Torben Tranaes, 1999. "Efficient Competition With Small Numbers -- With Applications to Privatisation and Mergers," NBER Working Papers 6952, National Bureau of Economic Research, Inc.
- D4 - Microeconomics - - Market Structure and Pricing
- L5 - Industrial Organization - - Regulation and Industrial Policy
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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