TY  - JOUR
AU  - Krishna,Kala
AU  - Tranaes,Torben
TI  - Efficient Competition With Small Numbers --  With Applications to Privatisation and Mergers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6952
PY  - 1999
Y2  - February 1999
UR  - http://www.nber.org/papers/w6952
L1  - http://www.nber.org/papers/w6952.pdf
N1  - Author contact info:
Kala Krishna
Department of Economics
523 Kern Graduate Building
The Pennsylvania State University
University Park, PA 16802
Tel: 814/865-1106
Fax: 814/863-4775
E-Mail: kmk4@psu.edu
AB  - This paper studies competition between a small number of suppliers and a single buyer (or an auction with a small number of bidders and a single seller), when total demand (supply) is uncertain.  It is well known that when a small number of suppliers compete in supply functions the service is not provided efficiently.  We show that production efficiency is obtained if suppliers compete in simple two-part bid functions.  However, profits are not eliminated.  Moreover, the buyers' (sellers') decision regarding how much to buy is not efficient.  We also show that suppliers (bidders in an auction) always have an incentive to merge (form bidding rings) in this setting.
ER  -