The Effects of Mergers in Open Auction Markets

Economic Analysis Group Disc. Paper No. EAG 01-10

27 Pages Posted: 5 May 2002

See all articles by Keith Waehrer

Keith Waehrer

Secretariat Economists

Martin K. Perry

Rutgers, The State University of New Jersey - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2001

Abstract

The buyer solicits bids from suppliers with different cost distributions defined by their capacities. The expected market share of each supplier is the ratio of its capacity to the industry capacity. The buyer's optimal reserve price declines with increases in the concentration of the industry. The lower reserve price can partially or fully offset the price effects of a merger. However, a merger still reduces the buyer's welfare because there is an increased probability of internal production at a higher cost. The lower reserve price can also undermine the incentive for larger suppliers to merge and result in stable industry structures for which no further mergers would be profitable.

Keywords: Bidding, Auction, Merger, Concentration

JEL Classification: L41, D44

Suggested Citation

Waehrer, Keith and Perry, Martin K., The Effects of Mergers in Open Auction Markets (July 3, 2001). Economic Analysis Group Disc. Paper No. EAG 01-10, Available at SSRN: https://ssrn.com/abstract=307981 or http://dx.doi.org/10.2139/ssrn.307981

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Martin K. Perry

Rutgers, The State University of New Jersey - Department of Economics ( email )

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