When can auctions maximize post-auction welfare?

Bernhard Kasberger

International Journal of Industrial Organization, 2023, vol. 89, issue C

Abstract: I study auctions in which firms bid for licenses that reduce their marginal costs in a post-auction downstream market. When there are three or more firms, I show that the Vickrey–Clarke–Groves (VCG) auction maximizes consumer surplus in dominant strategies if and only if it maximizes producer surplus in dominant strategies. With two firms, the effect on consumer surplus is ambiguous. When the VCG auction does not maximize consumer surplus, I show that consumer surplus can be maximized by adding caps, i.e., restricting the number of licenses a bidder can win. This might lower producer surplus.

Keywords: Allocative externality; Caps; Set-asides; Innovation; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: D44 D47 H82 L13 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:89:y:2023:i:c:s016771872300053x

DOI: 10.1016/j.ijindorg.2023.102972

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