Aftermarket Welfare and Procurement Auctions

Vladimir Karamychev

No 23-081/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Aftermarket social welfare is largely determined by a procurement auction design. Auctions select firms for operating aftermarkets, and auctions may also impose restrictions on aftermarket prices the winner can charge. This paper compares aftermarket social welfare generated by first-price and second-price procurement auctions. It reveals that the social welfare ranking depends on the monotonicity properties of the augmented demand elasticity, defined as a product of the demand elasticity and the firm’s relative markup. When the augmented elasticity is price independent, first-price and second-price procurement auctions are welfare-equivalent. When it increases (or decreases) with price, first-price (or second-price) auctions are welfare-superior.

Keywords: Aftermarket; Procurement auctions; Social Welfare; Monopoly (search for similar items in EconPapers)
JEL-codes: D44 H57 L12 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-des, nep-ipr and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20230081

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