TITLE:
Joint Bidding under Capacity Constraints
AUTHORS:
Beatriz De Otto-López
KEYWORDS:
Uniform-Price Auction Formats, Capacity Constraints, Ownership Structure, Collusion
JOURNAL NAME:
Applied Mathematics,
Vol.2 No.10,
October
14,
2011
ABSTRACT: In this paper we analyze the anticompetitive effects of concentration of ownership in auction markets. We compare two different auction formats with uniform price. In the first, the price equals the highest accepted bid, whereas in the second the price equals the lowest rejected bid. For the former, and for a two-unit, two-plants, two-firms model, we find an equilibrium where all plants (all firms) bid according to a common bidding function. The concentration of the ownership has the same effect on the bidding behavior as eliminating one plant. However, the expected price is lower than the one expected in such three independent plant scenario. More surprisingly (and special to this 2 × 2 × 2 case), the equilibrium is efficient. In the latter, alternative auction format, firms bids asymmetrically for its two plants. Hence, the equilibrium is inefficient. Also, with this format, we show that the market price may be arbitrarily large. Thus, and contrary to some plausible expectation base in received auction theory, a (sealed-bid) auction format in which the price for a bidder is unrelated to his bid becomes less efficient than one in which the price may coincide with that bidder’s bid, when one admits that several bidders may coordinate (through ownership) their bids. The results add to a literature that favors more winner’s-bid pricing rules.