BIDDING MARKETS

The existence of a "bidding market" is commonly cited as a reasonto tolerate the creation or maintenance of highly concentratedmarkets. We discuss three erroneous arguments to that effect:the "consultants' fallacy" that "market power is impossible,"the "academics' fallacy" that (often) "market power does notmatter," and the "regulators' fallacy" that "intervention againstpernicious market power is unnecessary," in markets characterizedby auctions or bidding processes.Furthermore we argue that theterm "bidding market" as it is widely used in antitrust is unhelpfulor misleading. Auctions and bidding processes do have some specialfeatures—including their price formation processes, common-valuesbehavior, and bid-taker power—but the significance ofthese features has been overemphasized, and they often implya need for stricter rather than more lenient competition policy.