Competition Policy in Auctions and 'Bidding Markets'

Posted by D. Daniel Sokol

Paul Klemperer of University of Oxford's Department of Economics has a wonderful literature review in the  HANDBOOK OF ANTITRUST ECONOMICS (P. Buccirossi, ed., MIT Press, Forthcoming) on  Competition Policy in Auctions and 'Bidding Markets'.

ABSTRACT: The existence of a "bidding market" is commonly cited as a reason to tolerate the creation or maintenance of highly concentrated markets. We discuss three erroneous arguments to that effect: the "consultants' fallacy" that "market power is impossible", the "academics' fallacy" that (often) "market power does not matter", and the "regulators' fallacy" that "intervention against pernicious market power is unnecessary", in markets characterised by auctions or bidding processes.

Furthermore we argue that the term "bidding market" as it is widely used in antitrust is unhelpful or misleading. Auctions and bidding processes do have some special features - including their price formation processes, common-values behaviour, and bid-taker power - but the significance of these features has been overemphasized, and they often imply a need for stricter rather than more lenient competition policy.