Organising Competition for the Market. Issue 2 (13th October 2021)

• Record Type: Journal Article
• Authors: Iossa, Elisabetta; Rey, Patrick; Waterson, Michael
• Is Part Of: Journal of the European Economic Association. Volume 20:Issue 2(2022)
• Page Start: 822
• Page End: 868
• Publication Date: 2021-10-13
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; Science économique; Périodique électronique (Descripteur de forme); Ressource Internet (Descripteur de forme); 330
• DOI: 10.1093/jeea/jvab044
• Languages: English
• ISSNs: 1542-4766

Abstract

Abstract: We study competition for the market in a setting where incumbents (and, to a lesser extent, neighbouring incumbents) benefit from a cost or information advantage. We first compare the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find the timing of tenders interrelates with the likelihood of monopolisation. For high incumbency advantages and/or discount factors, monopolisation is expected, in which case synchronous tendering is preferable as it strengthens the pressure that entrants exercise on the monopolist. For low incumbency advantages and/or discount factors, other firms remain active, in which case staggered tendering is preferable as it maximises competitive pressure coming from the other firms. We use bus tendering in London to illustrate our insights and draw policy implications.