Do Auctions and Forced Divestitures Increase Competition? Evidence for Retail Gasoline Markets

Posted by D. Daniel Sokol

Adriaan R. Soetevent, Amsterdam School of Economics, Tinbergen Institute, Marco A. Haan, University of Groningen - Economics, and Pim Heijnen, University of Amsterdam - Faculty of Economics and Business (FEB) ask Do Auctions and Forced Divestitures Increase Competition? Evidence for Retail Gasoline Markets.

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.