Horizontal Mergers in Optimal Auctions

Posted by Social Science Research Network

Horizontal Mergers in Optimal Auctions

Luke Froeb (Vanderbilt University), Vlad Mares (INSEAD) & Steven Tschantz (Vanderbilt University)

Abstract:     In this paper we study the impact of mergers among bidders when the auctioneer can respond optimally to changes in the market concentration. We find that the auctioneer’s ability to exercise such “buyer power” limits the ability of the merged bidders to exercise “market power.” In particular, while mergers always harm the auctioneer, the magnitude of the harm is much smaller than in an open auction benchmark. Bidder concentration matters but is less important than the auctioneer’s reservation utility. We also find that mergers benefit non-merging bidders, and will become unprofitable when the potential surplus is small enough. Welfare effects are complex as they depend both on the profile of the merging parties as well as on the auctioneer’s reservation utility.