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The Effects of Mergers in Open Auction Markets

Author

Listed:
  • Keith Waehrer

    (U.S. Department of Justice)

  • Martin Perry

    (Rutgers University)

Abstract

The buyer solicits bids from suppliers with different cost distributions defined by their capacities. The expected market share of each supplier is the ratio of its capacity to the industry capacity. The buyer's optimal reserve price declines with increases in the concentration of the industry. The lower reserve price can partially or fully offset the price effects of a merger. However, a merger still reduces the buyer's welfare because there is an increased probability of internal production at a higher cost. The lower reserve price can also undermine the incentive for larger suppliers to merge and result in stable industry structures for which no further mergers would be profitable.

Suggested Citation

  • Keith Waehrer & Martin Perry, 2002. "The Effects of Mergers in Open Auction Markets," Departmental Working Papers 200203, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200203
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    References listed on IDEAS

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    1. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, vol. 7(2), pages 193-220, September.
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    More about this item

    Keywords

    auctions; mergers;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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