Department of Labor Logo United States Department of Labor
Dot gov

The .gov means it's official.
Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you're on a federal government site.

Https

The site is secure.
The https:// ensures that you are connecting to the official website and that any information you provide is encrypted and transmitted securely.

Bureau of Labor Statistics > Office of Survey Methods and Research > Publications > Browse Research Papers

The Effects of Mergers in Open Auction Markets

Keith A. Waehrer and Martin Perry

Abstract

A buyer solicits bids from suppliers with different cost distributions. The cost distribution of a supplier is defined by its capacity. The expected market share of each supplier is the ratio of its capacity to the industry capacity. If the buyer's reserve price is fixed, mergers increase industry concentration, increase the expected price, and reduce the buyer's welfare. Moreover, suppliers have an incentive to merge. If the buyer can optimally lower the reserve price, he can partially or fully offset the effects of a merger. However, a merger still reduces the buyer's welfare because he must forego some gains from trade when he lowers the reserve price. The optimal reserve price can undermine the incentive for larger suppliers to merge and result in stable industry structures for which no further mergers would be profitable.