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Merging Auction Houses

  • Jesse A. Schwartz

    (Department of Economics, Vanderbilt University)

  • Ricardo Ungo

    (Department of Economics, Vanderbilt University)

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    In this paper, we study the incentives for market concentration of (online and traditional) auction houses. Would sellers and buyers be better off if two separate auction houses merged? We suppose that each auction house has a separate clientele of sellers and buyers. Sellers value their (identical) units at 0, while buyers have independent private values. Each auction house uses an ascending auction or by revenue equivalence any auction mechanism that allocates units efficiently among those buyers at that auction house. If no buyers are lost upon the merger, we find that efficiency gains increase, but that the expected sellers' revenue increases by more than the efficiency gains, leaving the buyers worse off. This result extends Bulow and Klemperer's (1996) insight that the competition of an additional bidder increases auction revenue by more than the ability to commit to an optimal auction with one less bidder; in our model, the extra competition created by having all of the bidders bid against each other after the merger more than offsets any supply effects. With an example, we show that if buyers choose whether to participate or not, it is possible upon a merger that so many buyers are lost, the sellers are actually worse off. We conclude that without transfers from sellers to buyers, the merger may or may not be profitable for sellers.

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    File Function: First version, 2003
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    Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0303.

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    Date of creation: Feb 2003
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    Handle: RePEc:van:wpaper:0303
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    1. Peters,M. & Severinov,S., 2001. "Internet auctions with many traders," Working papers 11, Wisconsin Madison - Social Systems.
    2. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
    3. Keith Waehrer & Martin Perry, 2002. "The Effects of Mergers in Open Auction Markets," Departmental Working Papers 200203, Rutgers University, Department of Economics.
    4. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc.
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