Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions

From bidding data, we estimate the underlying value distribution for Forest Service timber. We find that bidder values decrease $2/mbf (thousand board feet) with each mile from the tract and that small firms (fewer than 500 employees) have values that are $72/mbf lower than large firms. The empirical value distribution is used to simulate various hypothetical scenarios designed to inform public policy. The most anticompetitive mergers raise price by less than 3%, and a 4% decline in marginal costs through greater merger efficiencies is enough to offset a 1% anticompetitive price increase. Eliminating the SBA set-aside program would raise timber revenues by 15%. A policy of granting bidding preferences to small and more-distant bidders would raise revenue by approximately one-tenth of one percent. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology