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When Fewer Bids Increase Competition: Buyer Surplus Enhancing Mergers in Single-Award Procurement Auctions

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Abstract

We show that in a single-lot low-price auction, a merger can be simultaneously profitable and increase the buyer’s surplus, even in the absence of cost synergies. Thus the buyer’s purchasing price may go down even when a lower number of bids is submitted. In determining our main result we highlight the role of firms’ cost exhibiting a discontinuity due to short-term capacity constraints or non-linear contractual agreements. The paper contributes to a new strand of literature showing that in bidding markets the lack of merger-induced synergies does not necessarily imply worse outcomes for the buyer. Hence the Authorities need not worry about resorting to possibly convoluted assessment of the attainability of this kind of efficiencies.

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  • Gian Luigi Albano & Walter Ferrarese & Roberto Pezzuto, 2025. "When Fewer Bids Increase Competition: Buyer Surplus Enhancing Mergers in Single-Award Procurement Auctions," CEIS Research Paper 607, Tor Vergata University, CEIS, revised 09 Jul 2025.
    • Handle: RePEc:rtv:ceisrp:607
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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