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Tender auctions with existing operators bidding

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  • van den Berg, Vincent A.C.
  • Rouwendal, Jan

Abstract

Consider a government tendering a facility, such as an airport or railway, when one of the bidders is an ‘existing operator’ who owns another facility that is a substitute or complement to the tendered facility. In ‘standard auctions’, bidders compete on how much to pay to the government. We find that, all else equal, the existing operator offers to pay more than a ‘new bidder’ and the operator is therefore more likely to win the auction. In consumer-price auctions, bidders compete on the price they will charge. New bidders offer to set the price at their marginal cost. With complements, the existing operator strategically offers a price that is below its marginal cost; with substitutes, it offers a price that is above its marginal cost. Price auctions are better for welfare than standard auctions: they lead to lower mark-ups and are less affected by having an existing operator in the auction.

Suggested Citation

  • van den Berg, Vincent A.C. & Rouwendal, Jan, 2016. "Tender auctions with existing operators bidding," Economics of Transportation, Elsevier, vol. 6(C), pages 1-10.
    • Handle: RePEc:eee:ecotra:v:6:y:2016:i:c:p:1-10
    DOI: 10.1016/j.ecotra.2016.05.001
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    Cited by:

    1. Fu, Xinying & van den Berg, Vincent A.C. & Verhoef, Erik T., 2018. "Private road networks with uncertain demand," Research in Transportation Economics, Elsevier, vol. 70(C), pages 57-68.

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    More about this item

    Keywords

    D44; L13; L51; R48; Tendering; Existing operator; Network markets; Price auction; Infrastructures;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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