The Effect of Profit Sharing on Auction Markets
18 Pages Posted: 14 Feb 2004
Date Written: February 2004
We consider an independent private value auction environment in which bidders own passive partial claims of rival bidder's auction profits. While cross ownership confers no ability to directly affect bidding behavior, claims on rival profits dampen bidding competition. When bidders hold the same aggregate level of shares in rival bidders in a first-price auction, cross ownership has an effect similar to reducing the number of bidders. A similar decrease in competition occurs in English auctions. When there is cross ownership, the seller prefers first-price auctions to English auctions.
Keywords: Auctions, antitrust
JEL Classification: D44, L41
Suggested Citation: Suggested Citation