Working Paper: CEPR ID: DP10799
Authors: Klaus Gugler; Michael Weichselbaumer; Christine Zulehner
Abstract: In this paper, we analyze mergers in bidding markets. We utilize data from procurement auctions in the Austrian construction sector and estimate models of first-price sealed-bid auctions. Based on estimated cost and markups, we run merger simulations and disentangle the market power effects from potential cost efficiencies. We analyze static and dynamic models of first price auctions, and compare the outcomes of the merger simulations with the actual effects of observed mergers. Our results show that market power and efficiency effects are present post merger, leading to increased markups, but leaving the winning bid essentially unaffected by the merger. We find a good correspondence of predicted and actual effects for full mergers, but not for majority acquisitions.
Keywords: Construction; Procurement; Evaluation of Mergers; First-Price Auctions; Independent Private Values; Merger Simulation
JEL Codes: D44; L10; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mergers in first-price auctions (D44) | increased markups (D43) |
| mergers in first-price auctions (D44) | winning bid unaffected (D44) |
| mergers (G34) | decreases in marginal costs (D40) |
| decreases in marginal costs (D40) | drive bids down (D44) |
| reduction of competitors (L19) | less aggressive bidding (D44) |
| less aggressive bidding (D44) | increased markups (D43) |
| mergers (G34) | market power effects (L11) |
| market power effects (L11) | increased markups (D43) |