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Implementing Efficient Market Structure

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  • Veronika Grimm
  • Frank Riedel
  • Elmar G. Wolfstetter

Abstract

This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clark-Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms generally avoid budget deficits and prevent excessive entry.

Suggested Citation

  • Veronika Grimm & Frank Riedel & Elmar G. Wolfstetter, 2000. "Implementing Efficient Market Structure," CESifo Working Paper Series 269, CESifo.
    • Handle: RePEc:ces:ceswps:_269
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    2. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, University Library of Munich, Germany, revised 28 Apr 1998.
    4. Perry, Martin K, 1984. "Scale Economies, Imperfect Competition, and Public Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 32(3), pages 313-333, March.
    5. Szidarovszky, F & Yakowitz, S, 1977. "A New Proof of the Existence and Uniqueness of the Cournot Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(3), pages 787-789, October.
    6. Emmanuelle Auriol & Jean‐Jacques Laffont, 1992. "Regulation By Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-533, September.
    7. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    8. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    9. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    10. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    11. McGuire, Thomas G. & Riordan, Michael H., 1995. "Incomplete information and optimal market structure public purchases from private providers," Journal of Public Economics, Elsevier, vol. 56(1), pages 125-141, January.
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    Citations

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    Cited by:

    1. Sengupta, Abhijit & Tauman, Yair, 2011. "Inducing efficiency in oligopolistic markets with increasing returns to scale," Mathematical Social Sciences, Elsevier, vol. 62(2), pages 95-100, September.
    2. Jacob Goeree & Theo Offerman & Randolph Sloof, 2013. "Demand reduction and preemptive bidding in multi-unit license auctions," Experimental Economics, Springer;Economic Science Association, vol. 16(1), pages 52-87, March.
    3. Veronika Grimm & Frank Riedel & Elmar G. Wolfstetter, 2001. "The Third Generation (UMTS) Spectrum Auction in Germany," CESifo Working Paper Series 584, CESifo.
    4. Wolfstetter, Elmar, 2001. "The Swiss UMTS spectrum auction flop: Bad luck or bad design?," SFB 373 Discussion Papers 2001,50, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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    More about this item

    Keywords

    Mechanism design; natural oligopoly; auctions; entry;
    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
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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