Do Auctions and Forced Divestitures Increase Competition?

Posted by D. Daniel Sokol

Adriaan R. Soetevent (Amsterdam School of Economics, University of Amsterdam), Marco A. Haan (University of Groningen), and Pim Heijnen (Amsterdam School of Economics, University of Amsterdam) ask Do Auctions and Forced Divestitures Increase Competition?

ABSTRACT: Where markets are insufficiently competitive, governments can intervene by auctioning licenses to operate or by forcing divestitures. The Dutch government has done exactly that, organizing auctions to redistribute tenancy rights for high- way gasoline stations and forcing the divestiture of outlets of four majors. We evaluate this policy experiment using panel data containing detailed price information. Accounting for non-randomness of the sites are auctioned, we find that an obligation to divest lowers prices by over 2% while the auctioning of licenses without such an obligation has no discernible effect. We find no evidence for price effects on nearby competitors.