The Simple Algebra of Surplus in Open, Private Values Auctions: A Nested Logit Merger Model

In a private values, open auction, we show that bidder surplus can be expressed as a simple difference between unconditional moments of order statistics. The strength of the result is its simplicity and generality, as we dispense with the typical assumptions of independence and/or symmetry. We show how to use the expression to derive closed-form expressions for the effects of a merger among bidders for any joint value distribution, and illustrate its use by simulating the effects of the 2016 proposed Anthem-Cigna merger using a nested logit specification.

Keywords: Auctions; Merger; Antitrust; Horizontal Anticompetitive Practices, Nested Logit

JEL Classification: D44, L41, G34

Suggested Citation: Suggested Citation

Froeb, Luke M. and Mares, Vladimir and Taragin, Charles and Tschantz, Steven T., The Simple Algebra of Surplus in Open, Private Values Auctions: A Nested Logit Merger Model (July 5, 2017). Vanderbilt Owen Graduate School of Management Research Paper No. 3020255, Available at SSRN: https://ssrn.com/abstract=3020255 or http://dx.doi.org/10.2139/ssrn.3020255