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Selling a Cost Reducing Production Technique through Auction in a Duopolistic Industry

Author

Listed:
  • Chattopadhyay, Srobonti
  • Chatterjee, Rittwik

Abstract

This paper considers a two-stage game, where in the first stage, two firms bid non-cooperatively for a production technique that leads to a reduction in cost. Following the auction in the second stage of the game these firms compete against each other in a duopolistic industry. The amount of cost reduction for every firm following the adoption of the production technique is a private information to the concerned firm. In the model, the auctioneer is the government. Before the auction, the government announces whether she will reveal the bids after the auction, which is her choice variable. This paper makes an attempt to figure out the welfare implications of the bid disclosure policies under different parametric and market conditions. Our findings suggest that for the Bertrand competition in the second stage the revelation of the bids does not have any impact on the level of social welfare. For the Cournot competition in the second stage, whether the disclosure of bids would lead to higher level of social welfare than when the bids are suppressed, is determined by parametric conditions.

Suggested Citation

  • Chattopadhyay, Srobonti & Chatterjee, Rittwik, 2013. "Selling a Cost Reducing Production Technique through Auction in a Duopolistic Industry," MPRA Paper 52010, University Library of Munich, Germany, revised 09 Oct 2013.
  • Handle: RePEc:pra:mprapa:52010
    as

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    File URL: https://mpra.ub.uni-muenchen.de/52010/1/MPRA_paper_52010.pdf
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    References listed on IDEAS

    as
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    3. Scarpatetti, Benedikt von & Wasser, Cédric, 2010. "Signaling in Auctions among Competitors," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 293, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. Das Varma, Gopal, 2003. "Bidding for a process innovation under alternative modes of competition," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 15-37, January.
    5. Molnár, József & Virág, Gábor, 2008. "Revenue maximizing auctions with market interaction and signaling," Economics Letters, Elsevier, vol. 99(2), pages 360-363, May.
    6. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Auction; Market Structure; Oligopoly; Imperfect Competition;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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