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.

Additional Metadata
Keywords aftermarkets, auctions, cost-efficiency
JEL Oligopoly and Other Forms of Market Imperfection (jel D43), Production, Pricing, and Market Structure; Size Distribution of Firms (jel L11), Oligopoly and Other Imperfect Markets (jel L13)
Persistent URL dx.doi.org/10.1111/j.1468-0297.2009.02334.x, hdl.handle.net/1765/21427
Series ERIM Article Series (EAS)
Journal The Economic Journal
Citation
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