Undertakings often claim to operate on a bidding market, where it is impossible to have market power (“bidding market defence”).
This defence is only valid under four conditions: winner-takes-all, lumpy demand, absence of lock-in effects and easy entry. If fulfilled, one speaks of an ideal bidding market.
Non-compliance with at least one condition invalidates the defence, and “ordinary” antitrust problems resurge: firms may exercise market power. The feasibility thereof depends, firstly, on whether the bidding process is better qualified as an ascending or a sealed-bid auction and, secondly, on whether it is a private or a common value auction.
Three common ways of exercising market power in impure bidding markets are collusion, predation and entry deterrence. These strategies can be effectively tackled under Articles 81 or 82, except for tacit collusion. Therefore, competition authorities should use their powers under the Merger Regulation to avoid that mergers between bidders facilitate coordinated behaviour.
Consequently, markets with bidding contests do not always lead to competitive outcomes. To avoid confusion, these markets should not be referred to as “bidding markets” but as “markets with a bidding process”. The concept “bidding market” is better reserved for ideal bidding markets.
This article has been shortlisted for the 3rd Young Writer’s Competition Award.
World Competition