Mergers in Bidding Markets

Tinbergen Institute Discussion Paper 13-012/VII

25 Pages Posted: 12 Jan 2013

See all articles by Maarten Janssen

Maarten Janssen

University of Vienna - Faculty of Business, Economics, and Statistics

Vladimir A. Karamychev

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: January 9, 2013

Abstract

We analyze the effects of mergers in first-price sealed-bid auctions on bidders' equilibrium bidding functions and on revenue. We also study the incentives of bidders to merge given the private information they have. We develop two models, depending on how after-merger valuations are created. In the first, single-aspect model, the valuation of the merged firm is the maximum of the valuations of the two firms engaged in the merger. In the multi-aspect model, a bidder's valuation is the sum of two components and a merged firm chooses the maximum of each component of the two merging firms. In the first model, a merger creates incentives for bidders to shade their bids leading to lower revenue. In the second model, the non-merging firms do not shade their bids and revenue is actually higher. In both models, we show that all bidders have an incentive to merge.

Keywords: Mergers, first-price sealed-bid auctions

JEL Classification: D44, D82

Suggested Citation

Janssen, Maarten C. W. and Karamychev, Vladimir A., Mergers in Bidding Markets (January 9, 2013). Tinbergen Institute Discussion Paper 13-012/VII, Available at SSRN: https://ssrn.com/abstract=2198898 or http://dx.doi.org/10.2139/ssrn.2198898

Maarten C. W. Janssen (Contact Author)

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Vladimir A. Karamychev

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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