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On bidding markets: the role of competition

  • Gino Loyola

    ()

This paper analyzes the effects of industrial concentration on bidding behaviour and hence, on the seller´s expected proceeds. These effects are studied under the CIPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into four types: a competition effect, an inference effect, a winner´s curse effect and a sampling effect. The properties of these effects are discussed and conditions for (non) monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we083318.

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Date of creation: Jan 2008
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Handle: RePEc:cte:werepe:we083318
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  1. Baldwin, Laura H & Marshall, Robert C & Richard, Jean-Francois, 1997. "Bidder Collusion at Forest Service Timber Sales," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 657-99, August.
  2. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  3. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November.
  4. Wilson, Robert, 1992. "Strategic analysis of auctions," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 8, pages 227-279 Elsevier.
  5. 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.
  6. Pesendorfer, Martin, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 381-411, July.
  7. Han Hong, 2000. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Econometric Society World Congress 2000 Contributed Papers 1628, Econometric Society.
  8. Robert H. Porter & J. Douglas Zona, 1992. "Detection of Bid Rigging in Procurement Auctions," NBER Working Papers 4013, National Bureau of Economic Research, Inc.
  9. Compte, Olivier, 2000. "On the Value of Competition in Procurement Auctions," Econometric Society World Congress 2000 Contributed Papers 0829, Econometric Society.
  10. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-99, June.
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  12. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-11, May.
  13. Ken Hendricks & Robert Porter & Guofu Tan, 2003. "Bidding Rings and the Winner's Curse: The Case of Federal Offshore Oil and Gas Lease Auctions," NBER Working Papers 9836, National Bureau of Economic Research, Inc.
  14. Luciano I. de Castro, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," Economics Working Papers we074622, Universidad Carlos III, Departamento de Economía.
  15. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Waehrer, Keith, 1999. "Asymmetric private values auctions with application to joint bidding and mergers," International Journal of Industrial Organization, Elsevier, vol. 17(3), pages 437-452, April.
  17. Vlad Mares & Mikhael Shor, 2008. "Industry concentration in common value auctions: theory and evidence," Economic Theory, Springer, vol. 35(1), pages 37-56, April.
  18. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.
  19. Harry J. Paarsch & Han Hong, 2006. "An Introduction to the Structural Econometrics of Auction Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262162350, June.
  20. Dalkir, Serdar & Logan, John W. & Masson, Robert T., 2000. "Mergers in symmetric and asymmetric noncooperative auction markets: the effects on prices and efficiency," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 383-413, April.
  21. Li, Tong & Perrigne, Isabelle & Vuong, Quang, 2000. "Conditionally independent private information in OCS wildcat auctions," Journal of Econometrics, Elsevier, vol. 98(1), pages 129-161, September.
  22. Paul Klemperer, 2005. "Bidding Markets," Law and Economics 0508007, EconWPA.
  23. Steven Tschantz & Philip Crooke & Luke Froeb, 2000. "Mergers in Sealed versus Oral Auctions," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(2), pages 201-212.
  24. Han Hong & Matthew Shum, 2002. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 871-898.
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