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Do auctions select efficient firms?

  • Maarten C.W. Janssen
  • Vladimir A. Karamychev

We consider a government auctioning off multiple licences to firms that compete in an aftermarket. Firms have different costs, and cost-efficiency is private information in the auction and in the aftermarket. If only one licence is auctioned, standard results say that the most efficient firm wins the auction as it has the highest valuation for the licence. We analyse conditions under which this result does and does not generalise to the case of auctioning multiple licences and aftermarket competition. Strategic interaction in the aftermarket is responsible for the fact that auctions may select inefficient firms. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2009.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 549 (December)
Pages: 1319-1344

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:549:p:1319-1344
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