Wednesday, August 9, 2017
Philippe Gagnepain (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) and David Martimort (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) propose Merger Guidelines for Bidding Markets.
ABSTRACT:We propose merger guidelines for bidding markets through the construction of a simple test. It is applied in the particular context of the French urban transport industry. It designs the optimal auction and captures two opposite forces at stake: on the one hand, the optimal auction is biased against a merger due to a loss of competition; on the other hand, potential efficiency gains bias the optimal allocation towards the merger firm. The two effects can be nested in a single equation condition which determines whether the merger improves the consumer net surplus. We suggest that the merger between Transdev and Veolia is consumer surplus improving if the efficiency gains from the merger allow both firms to decrease their initial costs inability by at least 17.9% and 17.8% respectively.