The E ® ects of Mergers in Open Auction Markets

The buyer solicits bids from suppliers with di®erent cost distributions de ̄ned by their capacities. The expected market share of each supplier is the ratio of its capacity to the industry capacity. The buyer's optimal reserve price declines with increases in the concentration of the industry. The lower reserve price can partially or fully o®set the price e®ects of a merger. However, a merger still reduces the buyer's welfare because there is an increased probability of internal production at a higher cost. The lower reserve price can also undermine the incentive for larger suppliers to merge and result in stable industry structures for which no further mergers would be pro ̄table. ¤Any views expressed in this paper are not purported to re°ect those of the United States Department of Justice. This paper bene ̄ted from the comments of Roberto Burguet, Robert Bradford, Serdar Dalkir, Luke Froeb, Ian Gale, Patrick Greenlee, Preston McAfee, Rich McLean, Mike Rothkopf, Jozsef Sakovics, Guofu Tan, and Charles Thomas.