On the Competitive Effects of Bidding Syndicates

Abstract

Firms commonly form syndicates to bid jointly for financial assets. Recently, this practice has come under legal scrutiny motivated by models which suggest syndicates are anti-competitive. These models do not account for two important features of financial markets: bidders' value estimates are likely to be correlated, and complicated mechanisms known to be optimal in such settings are usually eschewed in favor of simpler auction formats. We show that these features make it possible for syndicate bidding to generate higher revenues for the auctioneer than bidding among independent firms, even when syndicates are asymmetric or lead to a highly concentrated market. This occurs because syndication can make the industry more suitable to the simple auction format in use. We identify conditions under which syndicates are pro-competitive and discuss the implications for antitrust.

Do private equity consortiums facilitate collusion in takeover bidding?

“…Book leverage, measured as the ratio of the target's long term and short term debt divided by the book value of assets, is found by Bradley et al (1984) to be inversely related to firm risk and therefore would be predicted to also be inversely related to consortium formation. Theory such as Mares and Shor (2007) suggests that bidding by consortiums would be selected when information sharing and joint expertise would be more beneficial. As a proxy of information complexity, we use return standard deviation, defined as the standard deviation of the target's daily stock return in the 1 year ending 64 days before the initial takeover related announcement, and predict this variable to be positively related to consortium formation.…”

Essays in applied microeconomic theory

“…He shows that offering a bribing contract to one's competitor signals the proposer's private information about the object value and may lead to failed collusion. Krishna and Morgan (1997) and Mares and Shor (2012) examine the effect of joint bidding in pure common-value environments on the seller's expected equilibrium revenue. They focus on the special case where multiple cartels of identical size compete in a second-price auction but do not endogenize cartel formation.…”