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4 - Levelling the playing field in auctions and the prohibition of state aid

Published online by Cambridge University Press:  03 December 2009

By
Emiel Maasland ,
Yves Montangie  and
Roger van den Bergh
Edited by
Maarten Janssen
Emiel Maasland
Affiliation:
Researcher, SEOR
Yves Montangie
Affiliation:
Researcher, Erasmus Competition and Regulation Institute, Rotterdam; Professor of business law, Lessius Business School, Antwerp
Roger van den Bergh
Affiliation:
Professor of law and economics, Erasmus University, Rotterdam
Maarten Janssen
Affiliation:
Erasmus Universiteit Rotterdam
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Summary

Introduction

In order to enhance competition in markets which are not functioning well, governments may decide to assign new rights to supply (licences) in an auction. Because of differences in market power and financial strength, the starting positions of incumbent firms and newcomers are not the same (the playing field is not level). As an ordinary auction, in which all firms are treated symmetrically, may not do very well in creating a more competitive market when the playing field is not level, governments may wish to introduce asymmetries in the auction design (levelling the playing field among firms participating in the auction). This chapter discusses some devices to level the playing field and the conformity of such instruments with EC law. A detailed analysis of the conditions under which a level playing field should be created lies outside the scope of this chapter. However, the essence is well formulated by McMillan (1994, p. 157):

Theory says that auctions usually produce efficient outcomes: in most cases the winner is the bidder with the highest use-value for the license. This argues for laissez-faire … Favoring certain bidders is justified, on the other hand, if bidders' willingness to pay does not reflect social value, because of externalities or capital-market imperfections, or for distributional reasons.

In other words, favouring disadvantaged bidders is only justified when it would prove helpful to economic efficiency, i.e. the sum of consumer and producer surplus.

Type
Chapter
Information
Auctioning Public Assets
Analysis and Alternatives
 , pp. 108 - 129
Publisher: Cambridge University Press
Print publication year: 2004

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References

Ayres, I. and Cramton, P. 1996, ‘Deficit reduction through diversity: how affirmative action at the FCC increased auction competition’, Stanford Law Review, 48(4): 761–815CrossRefGoogle Scholar
Börgers, T. and Dustmann, C. 2003, ‘Awarding telecom licenses: the recent European experience’, Economic Policy, 36: 216–68Google Scholar
Cramton, P. 2001, ‘Lessons learned from the UK 3G spectrum auction’, in National Audit Office (2001), Appendix 3
Damme, E. van 1998, ‘Asymmetrisch veilen: waarom geen sprake is van staats-steun?’ (‘Asymmetric auctioning: why should it not be considered as state aid?’), mimeo, Netherlands Ministry of Finance
Damme, E. 2002, ‘The European UMTS-Auctions’, European Economic Review, 46(4–5): 846–58CrossRefGoogle Scholar
European Commission 2002, ‘Vademecum – Community rules on state aid’, Directorate-General for Competition, Brussels
Klemperer, P. 2002, ‘What really matters in auction design’, Journal of Economic Perspectives, 16(1): 169–90CrossRefGoogle Scholar
McMillan, J. 1994, ‘Selling spectrum rights’, Journal of Economic Perspectives, 8(3): 145–62CrossRefGoogle Scholar
Myerson, R. 1981, ‘Optimal auction design’, Mathematics of Operations Research, 6(1): 58–73CrossRefGoogle Scholar
National Audit Office 2001, ‘The auction of radio spectrum for the third generation of mobile telephones’, Report by the Comptroller and Auditor General, HC 233 Session 2001–2
Onderstal, S. 2002, ‘Level playing field in the design of auctions’, mimeo, CPB (Netherlands Bureau for Economic Research)

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