Mergers, Cartels, Set-Asides, and Bidding Preferences in Asymmetric Oral Auctions

From bidding data, we estimate the underlying value distribution for Forest Service timber. We nd that bidder values decrease $2=mbf (thousand board feet) with each mile from the tract and that small rms (less than 500 employees) have values that are $72=mbf lower than large rms. The empirical value distribution is used to simulate various hypothetical scenarios designed to inform public policy. The most anticompetitive mergers raise price by less than three percent, and a four-percent decline in marginal costs through greater merger e ciencies is enough to o set a one-percent anticompetitive price increase. Eliminating the SBA Set-Aside program would raise timber revenues by 15 percent. A policy of granting bidding preferences to small and more distant bidders would raise revenue by about one-tenth of one percent. Steven Tschantz and Philip Crooke co-developed the theory, wrote much of the Mathematica code used in this paper, and provided valuable advice. Two referees, Patrick Bajari, Bruce Cooil, Vivek Ghosal, and Katherine Wolfram also provided valuable comments. Support for this project was provided by the Dean's fund for faculty research at the Owen Graduate School of Management.