We thank an anonymous referee, Larry Ausubel, Benny Moldovanu, audiences at ESEM 2007, European University Institute, Groningen, Institute of Economic Analysis (Barcelona), Erasmus University Rotterdam, Maastricht, Vienna and Tinbergen Institute, for helpful comments and suggestions. We are especially grateful to David Myatt (editor) for providing very extensive and valuable comments on improving the exposition of the key result of the article.
Do auctions select efficient firms?*
Version of Record online: 16 NOV 2010
© The Author(s). Journal compilation © Royal Economic Society 2009
The Economic Journal
Volume 120, Issue 549, pages 1319–1344, December 2010
How to Cite
Janssen, M. C. W. and Karamychev, V. A. (2010), Do auctions select efficient firms?. The Economic Journal, 120: 1319–1344. doi: 10.1111/j.1468-0297.2009.02334.x
- Issue online: 16 NOV 2010
- Version of Record online: 16 NOV 2010
- Submitted: 20 February 2008 Accepted: 2 June 2009
We consider a government auctioning off multiple licences to firms that compete in an aftermarket. Firms have different costs, and cost-efficiency is private information in the auction and in the aftermarket. If only one licence is auctioned, standard results say that the most efficient firm wins the auction as it has the highest valuation for the licence. We analyse conditions under which this result does and does not generalise to the case of auctioning multiple licences and aftermarket competition. Strategic interaction in the aftermarket is responsible for the fact that auctions may select inefficient firms.