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Organizing Competition for the Market

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  • Iossa, Elisabetta
  • Rey, Patrick
  • Waterson, Michael

Abstract

The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.

Suggested Citation

  • Iossa, Elisabetta & Rey, Patrick & Waterson, Michael, 2019. "Organizing Competition for the Market," TSE Working Papers 19-984, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:33261
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    References listed on IDEAS

    as
    1. Barbosa, Klenio & Boyer, Pierre C., 2021. "Discrimination in Dynamic Procurement Design with Learning-by-doing," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    2. Dakshina G. De Silva, 2005. "Synergies in Recurring Procurement Auctions: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 55-66, January.
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    4. Tracy R. Lewis & Huseyin Yildirim, 2005. "Managing Switching Costs In Multiperiod Procurements With Strategic Buyers ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1233-1269, November.
    5. James J. Anton & Dennis A. Yao, 1987. "Second Sourcing and the Experience Curve: Price Competition in Defense Procurement," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 57-76, Spring.
    6. Jofre-Bonet, Mireia & Pesendorfer, Martin, 2000. "Bidding behavior in a repeated procurement auction: A summary," European Economic Review, Elsevier, vol. 44(4-6), pages 1006-1020, May.
    7. De Silva, Dakshina G. & Kosmopoulou, Georgia & Lamarche, Carlos, 2009. "The effect of information on the bidding and survival of entrants in procurement auctions," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 56-72, February.
    8. Dakshina G. De Silva & Timothy Dunne & Georgia Kosmopoulou, 2003. "An Empirical Analysis of Entrant and Incumbent Bidding in Road Construction Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 51(3), pages 295-316, September.
    9. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, vol. 17(2), pages 166-175, June.
    10. Cabral, Luis M B & Greenstein, Shane, 1990. "Switching Costs and Bidding Parity in Government Procurement of Computer Systems," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(2), pages 453-469, Fall.
    11. Viplav Saini, 2012. "Endogenous asymmetry in a dynamic procurement auction," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 726-760, December.
    12. Gourvish, Terry, 2002. "British Rail 1974-1997: From Integration to Privatisation," OUP Catalogue, Oxford University Press, number 9780199250059.
    13. Dimitri,Nicola & Piga,Gustavo & Spagnolo,Giancarlo (ed.), 2006. "Handbook of Procurement," Cambridge Books, Cambridge University Press, number 9780521870733, October.
    14. Miguel Amaral & Stéphane Saussier & Anne Yvrande-Billon, 2013. "Expected Number of Bidders and Winning Bids: Evidence from the London Bus Tendering Model," Journal of Transport Economics and Policy, University of Bath, vol. 47(1), pages 17-34, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    2. Aguiar, Luis & Gagnepain, Philippe, 2022. "Absorptive capacity, knowledge spillovers and incentive contracts," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    3. Iossa, Elisabetta & Loertscher, Simon & Marx, Leslie & Rey, Patrick, 2020. "Collusive Market Allocations," CEPR Discussion Papers 14563, C.E.P.R. Discussion Papers.
    4. Barbosa, Klenio & Boyer, Pierre C., 2021. "Discrimination in Dynamic Procurement Design with Learning-by-doing," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    5. Bru, Lluís & Cardona, Daniel & Sákovics, József, 2023. "Block sourcing plus," European Journal of Operational Research, Elsevier, vol. 305(3), pages 1130-1140.
    6. Lebeau, Alexis & Petitet, Marie & Quemin, Simon & Saguan, Marcelo, 2024. "Long-term issues with the Energy-Only Market design in the context of deep decarbonization," Energy Economics, Elsevier, vol. 132(C).
    7. Spiegel, Alisa & Coletta, Attilio & Severini, Simone, 2022. "The distortive effect of organic payments: An example of policy failure in the case of hazelnut plantation," Land Use Policy, Elsevier, vol. 119(C).

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    More about this item

    Keywords

    Dynamic procurement; incumbency advantage; local monopoly; competition; asymmetric auctions; synchronous contracts; staggered contracts;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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