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Merging Auction Houses

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Author Info
Jesse A. Schwartz (Department of Economics, Vanderbilt University)
Ricardo Ungo (Department of Economics, Vanderbilt University)
Abstract

In this paper, we study the incentives for market concentration of (online and traditional) auction houses. Would sellers and buyers be better off if two separate auction houses merged? We suppose that each auction house has a separate clientele of sellers and buyers. Sellers value their (identical) units at 0, while buyers have independent private values. Each auction house uses an ascending auction or by revenue equivalence any auction mechanism that allocates units efficiently among those buyers at that auction house. If no buyers are lost upon the merger, we find that efficiency gains increase, but that the expected sellers' revenue increases by more than the efficiency gains, leaving the buyers worse off. This result extends Bulow and Klemperer's (1996) insight that the competition of an additional bidder increases auction revenue by more than the ability to commit to an optimal auction with one less bidder; in our model, the extra competition created by having all of the bidders bid against each other after the merger more than offsets any supply effects. With an example, we show that if buyers choose whether to participate or not, it is possible upon a merger that so many buyers are lost, the sellers are actually worse off. We conclude that without transfers from sellers to buyers, the merger may or may not be profitable for sellers.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu03-w03.pdf
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Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0303.

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Date of creation: Feb 2003
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Handle: RePEc:van:wpaper:0303

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Related research
Keywords: Auctions; mergers;

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Find related papers by JEL classification:
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

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  1. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March. [Downloadable!] (restricted)
  2. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, vol. 7(2), pages 193-220, September. [Downloadable!] (restricted)
  3. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March. [Downloadable!] (restricted)
  5. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  6. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  8. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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  9. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October. [Downloadable!] (restricted)
  10. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  11. repec:att:wimass:1920111 is not listed on IDEAS
  12. Glenn Allison & Drew Fudenberg, 2002. "Competing Auctions," Harvard Institute of Economic Research Working Papers 1960, Harvard - Institute of Economic Research. [Downloadable!]
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  13. Michael Peters & Sergei Severinov, 2001. "Internet Auctions with Many Traders," Working Papers peters-01-01, University of Toronto, Department of Economics. [Downloadable!]
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  14. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-99, June. [Downloadable!] (restricted)
    Other versions:
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  15. Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19. [Downloadable!] (restricted)
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