A Basic Auction Model to Analyze Mergers Among Bidders

Analytics

Auctions frequently involve interactions between sellers and buyers. In certain auctions, sellers take on the role of auctioneers, while in others, buyers assume this responsibility. Although the modeling of these auctions is generally similar, a notable aspect arises when bidders merge. This situation prompts an intriguing question: how does the seller, acting as the auctioneer, experience the impact of such mergers?

The U.S. Department of Justice (DOJ) successfully blocked the proposed merger between Penguin Random House and Simon & Schuster. The DOJ employed a monopsony framework to assess the potential harm to authors from this merger of two publishing giants. In this post, we will present a basic model to analyze the implications of this proposed merger.