DP10799 Analysis of mergers in first-price auctions

Author(s): Klaus Peter Gugler, Michael Weichselbaumer, Christine Zulehner
Publication Date: August 2015
Keyword(s): construction procurement, evaluation of mergers, first-price auctions, independent private values, merger simulation
JEL(s): D44, L10, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10799

In this paper, we analyze mergers in bidding markets. We utilize data from procurement auctions in the Austrian construction sector and estimate models of first-price sealed-bid auctions. Based on estimated cost and markups, we run merger simulations and disentangle the market power effects from potential cost efficiencies. We analyze static and dynamic models of first price auctions, and compare the outcomes of the merger simulations with the actual effects of observed mergers. Our results show that market power and efficiency effects are present post merger, leading to increased markups, but leaving the winning bid essentially unaffected by the merger. We find a good correspondence of predicted and actual effects for full mergers, but not for majority acquisitions.