Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface
- Introduction
- Part I Theory
- 1 Auction theory for auction design
- 2 Beauty Contest design
- 3 Preventing collusion among firms in auctions
- 4 Levelling the playing field in auctions and the prohibition of state aid
- 5 Allocation mechanisms and post-allocation interaction
- Part II Case studies
- Index
- References
4 - Levelling the playing field in auctions and the prohibition of state aid
Published online by Cambridge University Press: 03 December 2009
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface
- Introduction
- Part I Theory
- 1 Auction theory for auction design
- 2 Beauty Contest design
- 3 Preventing collusion among firms in auctions
- 4 Levelling the playing field in auctions and the prohibition of state aid
- 5 Allocation mechanisms and post-allocation interaction
- Part II Case studies
- Index
- References
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 AssetsAnalysis and Alternatives, pp. 108 - 129Publisher: Cambridge University PressPrint publication year: 2004
References
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