BIDDING MARKETS |
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| Authors: | Klemperer Paul |
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| Institution: | Correspondence: * Edgeworth Professor of Economics, Oxford University; Member, UK Competition Commission. Email: paul.klemperer{at}economics.ox.ac.uk. This paper was circulated by the UK Competition Commission as the first in its series of Occasional Papers in June 2005, but the views expressed are personal and should not be attributed to the Commission or to any past or present individual Member other than myself. I had neither any advisory nor any decision-making role in any of the Commission's cases discussed below. Furthermore, although some observers thought some of the behavior described below warranted regulatory investigation, I do not intend to suggest that any of it violates any applicable rules or laws. I am very grateful to all the consultants, academics, and regulators, who helped and advised me on it. Special thanks are due to Claes Bengtsson, John Davies, Giulio Federico, Paul Geroski, Christian Kobaldt, Daniel Marszalec, Marco Pagnozzi, David Reitman, Amanda Rowlatt, Max Tse, and Mark Williams. A chapter based on this article is forthcoming in the Handbook of Antitrust Economics (P. Buccirossi, ed., MIT Press), and this article appears by kind permission of the MIT Press. Copyright 2006 by Paul Klemperer. |
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| Abstract: | 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. |
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