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.

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Keywords aftermarkets, auctions, cost-efficiency
Persistent URL dx.doi.org/10.1111/j.1468-0297.2009.02334.x, hdl.handle.net/1765/21427
Janssen, M.C.W, & Karamychev, V.A. (2010). Do Auctions Select Efficient Firms?. The Economic Journal, 120(549), 1319–1344. doi:10.1111/j.1468-0297.2009.02334.x