Horizontal Mergers in Optimal Auctions

Abstract

Following merger, an optimal mechanism discriminates against merging bidders with higher reserve prices and by allocating more often towards non-merging bidders. In this setting, we show that mergers always harm the auctioneer, benefit non-merging bidders, can increase total surplus, and have effects that decrease with increases in the auctioneer's reservation value, to the point where the merger can become unprofitable. Merger effects are also much smaller than in open auctions because bidders compete more against an optimal mechanism than they do against each other. As a consequence, there is less competition for mergers to eliminate.

Keywords: Mechanism Design, Optimal Auctions, Merger, Buyer Power, Antitrust, Horizontal Anticompetitive Practices

JEL Classification: D82, L41, G34