Analysis of Mergers in First-Price Auctions

Project Start: 12/2016
Status: Completed
Researchers: Klaus Gugler, Michael Weichselbaumer, Christine Zulehner
Category: Corporate Finance
Funded by: LOEWE

Topic & Objectives

In this project, 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.