Abstract
Keith Waehrer and Martin K. Perry (1999) "The Effects of
Mergers in Open Auction Markets."
A buyer solicits bids from suppliers with different cost distributions. The cost
distribution of a supplier is defined by its capacity. The expected market share of each
supplier is the ratio of its capacity to the industry capacity. If the buyer's reserve
price is fixed, mergers increase industry concentration, increase the expected price, and
reduce the buyer's welfare. Moreover, suppliers have an incentive to merge. If the buyer
can optimally lower the reserve price, he can partially or fully offset the effects of a
merger. However, a merger still reduces the buyer's welfare because he must forego some
gains from trade when he lowers the reserve price. The optimal reserve price can undermine
the incentive for larger suppliers to merge and result in stable industry structures for
which no further mergers would be profitable.
Last Modified Date: July 19, 2008
|