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On the Competitive Effects of Bidding Syndicates

Listed author(s):
  • Mares Vlad

    ()

    (Northwestern University)

  • Shor Mikhael

    ()

    (University of Connecticut)

Firms commonly form syndicates to bid jointly for financial assets. Recently, this practice has come under legal scrutiny motivated by models which suggest syndicates are anti-competitive. These models do not account for two important features of financial markets: bidders' value estimates are likely to be correlated, and complicated mechanisms known to be optimal in such settings are usually eschewed in favor of simpler auction formats. We show that these features make it possible for syndicate bidding to generate higher revenues for the auctioneer than bidding among independent firms, even when syndicates are asymmetric or lead to a highly concentrated market. This occurs because syndication can make the industry more suitable to the simple auction format in use. We identify conditions under which syndicates are pro-competitive and discuss the implications for antitrust.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 12 (2012)
Issue (Month): 1 (September)
Pages: 1-33

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Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:35
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References listed on IDEAS
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  1. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford.
  2. Boone, Audra L. & Mulherin, J. Harold, 2011. "Do private equity consortiums facilitate collusion in takeover bidding?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1475-1495.
  3. Larry M. DeBrock & James L. Smith, 1983. "Joint Bidding, Information Pooling, and the Performance of Petroleum Lease Auctions," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 395-404, Autumn.
  4. Shane A. Corwin & Paul Schultz, 2005. "The Role of IPO Underwriting Syndicates: Pricing, Information Production, and Underwriter Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 443-486, 02.
  5. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  6. Claudio Mezzetti & Ilia Tsetlin, 2006. "Auctions in which Losers Set the Price," Discussion Papers in Economics 06/8, Department of Economics, University of Leicester, revised Mar 2007.
  7. Andy Lockett & Mike Wright, 1999. "The syndication of private equity: Evidence from the UK," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 303-324, October.
  8. repec:oxf:wpaper:2004-w09 is not listed on IDEAS
  9. Paul Klemperer, 2004. "Survey of Auction Theory, from Auctions: Theory and Practice," Introductory Chapters, in: Auctions: Theory and Practice Princeton University Press.
  10. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-429, April.
  11. Pegaret Pichler, 2001. "A Theory of the Syndicate: Form Follows Function," Journal of Finance, American Finance Association, vol. 56(6), pages 2237-2264, December.
  12. Pegaret Pichler & William Wilhelm, 2001. "A Theory of the Syndicate: Form Follows Function," OFRC Working Papers Series 2001fe05, Oxford Financial Research Centre.
  13. repec:oxf:wpaper:2001-fe-05 is not listed on IDEAS
  14. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, 02.
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