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Aftermarket Welfare and Procurement Auctions

Author

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  • Vladimir A. Karamychev

    (Erasmus University Rotterdam)

Abstract

Aftermarket social welfare is largely determined by a procurement auction design. Auctions select firms for operating aftermarkets, and auctions may also impose restrictions on aftermarket prices the winner can charge. This paper compares aftermarket social welfare generated by first-price and second-price procurement auctions. It reveals that the social welfare ranking depends on the monotonicity properties of the augmented demand elasticity, defined as a product of the demand elasticity and the firm’s relative markup. When the augmented elasticity is price independent, first-price and second-price procurement auctions are welfare-equivalent. When it increases (or decreases) with price, first-price (or second-price) auctions are welfare-superior.

Suggested Citation

  • Vladimir A. Karamychev, 2023. "Aftermarket Welfare and Procurement Auctions," Tinbergen Institute Discussion Papers 23-081/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20230081
    as

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    References listed on IDEAS

    as
    1. Ewerhart, Christian & Fieseler, Karsten, 2003. "Procurement Auctions and Unit-Price Contracts," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 569-581, Autumn.
    2. Emiel Maasland & Sander Onderstal, 2007. "Auctions with Financial Externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 551-574, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Aftermarket; Procurement auctions; Social Welfare; Monopoly;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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