DP13461 Organizing Competition for the Market

Author(s): Elisabetta Iossa, Patrick Rey, Michael Waterson
Publication Date: January 2019
Date Revised: January 2019
Keyword(s): asymmetric auctions, Competition, Dynamic procurement, Incumbency Advantage, local monopoly, staggered contracts, synchronous contracts
JEL(s): D44, D47, H40, H57, L43, L51, R48
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13461

The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.