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On the Competitive Effects of Bidding Syndicates

Author

Listed:
  • Mares Vlad

    () (Northwestern University)

  • Shor Mikhael

    () (University of Connecticut)

Abstract

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.

Suggested Citation

  • Mares Vlad & Shor Mikhael, 2012. "On the Competitive Effects of Bidding Syndicates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-33, September.
  • 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. 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, February.
    2. repec:bla:joares:v:25:y:1987:i:1:p:49-67 is not listed on IDEAS
    3. Waehrer, Keith & Perry, Martin K, 2003. " The Effects of Mergers in Open-Auction Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 287-304, Summer.
    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, February.
    5. Mezzetti, Claudio & Tsetlin, Ilia, 2009. "Auctions in which losers set the price," Games and Economic Behavior, Elsevier, vol. 66(2), pages 855-864, July.
    6. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    Cited by:

    1. Vlad Mares & Mikhael Shor, 2013. "Information concentration in common value environments," Review of Economic Design, Springer;Society for Economic Design, vol. 17(3), pages 183-203, September.

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