BIDDING MARKETS

Paul Klemperer

Journal of Competition Law and Economics, 2007, vol. 3, issue 1, 1-47

Abstract: The existence of a “bidding market” is commonly cited as a reason to tolerate the creation or maintenance of highly concentrated markets. We discuss three erroneous arguments to that effect: the “consultants' fallacy” that “market power is impossible,” the “academics' fallacy” that (often) “market power does not matter,” and the “regulators' fallacy” that “intervention against pernicious market power is unnecessary,” in markets characterized by auctions or bidding processes.Furthermore we argue that the term “bidding market” as it is widely used in antitrust is unhelpful or misleading. Auctions and bidding processes do have some special features—including their price formation processes, common-values behavior, and bid-taker power—but the significance of these features has been overemphasized, and they often imply a need for stricter rather than more lenient competition policy.

Date: 2007
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Working Paper: Bidding Markets (2005)
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