<p>Why does antitrust matter if we can just use auctions to get truthful reporting of marginal costs? Like, if I want to get an oligopoly market to truthfully price items at socially optimal marginal costs, then I should just conduct an auction each time I want to buy an item, and it will be incentive compatible for the oligopolists to truthfully report their marginal costs.</p>
<p>As a background, antitrust authorities help make sure that companies compete in a way that is good for consumers, especially in markets where there aren't many competitors. Typically the way they do this is by limiting market consolidation and preventing mergers / encouraging company splits. One idea to help solve this problem is to use a Vickrey auction to make companies report their true costs honestly.</p>
<p>In a typical Vickrey auction for one item where each bidder secretly tells the auctioneer how much they think the item is worth:</p>
<ol>
<li>Each bidder sends in their own secret price based on what the item is worth to them.</li>
<li>The auctioneer picks the highest bidder to win the item.</li>
<li>The winner pays the amount of the second-highest bid.</li>
</ol>
<p>This encourages everyone to bid honestly because they pay the second-highest price, not their own, which means there’s no benefit to lying about how much they value the item.</p>
<p>Imagine using this auction method in a market with only a few hospitals. It’s usually hard to get these hospitals to compete because there are so few of them, even when we have insurers that try to bargain prices with them. With a Vickrey auction, hospitals would bid to provide medical services, aiming to treat patients at the lowest cost.</p>
<ol>
<li>Hospitals would submit bids based on the cost of treating patients.</li>
<li>The hospital with the lowest bid wins the right to treat the patients but gets paid the amount of the second-lowest bid.</li>
</ol>
<p>This encourages hospitals to report their real costs honestly because if they bid too low, they might not cover their costs, but if they bid too high, they won’t win the contract. Auction theorists have generalized this to multi-unit auctions, with variable marginal costs and multiple winners (aka multiple hospitals win the right to treat a different number of patients at different costs), so it's a very flexible solution.</p>
<p>See Vijay Krishna, Auction Theory.</p>

CC BY-SA 4.0
2024-04-22T23:07:39.900Z
Getting a monopolist to truthfully report their marginal cost is not going to make them price goods at marginal cost. Also, what auction format do you have in mind?
Michael Greinecker
CC BY-SA 4.0
2024-04-23T00:36:42.683Z
well, we could use a 2nd price auction for the good, where all the market participants just participate in the auction in order to provide the good at the cheapest price. we buy the good from the one that reports the cheapest price, but then pay them according to the price of the 2nd cheapest option.
Daycent
CC BY-SA 4.0
2024-04-23T06:42:11.917Z
Congratulations, the winner of your auction has completed the pizza! It is available for pickup at Nelson Mandela Avenue 5, Harare, Zimbabwe. (See also non-homogeneous goods.) Other topics of interest might include non-constant marginal costs, long-term investments, and addig details to your question, as well as references to add context to and back up your claims.
Giskard
CC BY-SA 4.0
2024-04-24T02:59:54.393Z
haha, I love the snark. Thanks for always answering questions on stackexchange. I'll edit it.
Daycent
CC BY-SA 4.0
2024-04-24T04:36:05.073Z
Hi @Daycent! So I have, in fact, read Krishna's Auction Theory and know what a 2nd price auction is, but do you understand my other points? Would you treat equally the bids of a hospital 10 miles away and one 60 miles away from the patient? (Non-homogeneous goods.) Do you know, that if a firm has bought up all the MRI machine producers because there was no antitrust, then other hospitals will not be able to bid on providing MRI service? (Long-term investment.)
Giskard
CC BY-SA 4.0
2024-04-24T18:55:57.760Z
You're absolutely right that if the firm has bought up all the MRI machines, then that would be an issue. I totally agree that antitrust is an issue in that regard. However, typically those cases are rural markets where the issue isn't antitrust, but rather that there are no entrants, which is a different issue. I can think of several ways to resolve nonhomogenous goods. First, you can treat certain items as as-if homogenous (say that the patient is willing to consider any MRI that is within 10 mi. of their home), and conduct the auction in that format.
Daycent
CC BY-SA 4.0
2024-04-24T19:00:20.527Z
Second--and this would be more complicated--but you could have the insurer bundle consumers (similar to how ebay sells big boxes of miscellaneous goods) such that the average distance of each of these consumers to each bidder is the same.
Daycent
CC BY-SA 4.0
2024-04-24T19:01:31.840Z
I agree that they're both imperfect solutions to your replies, but I guess what I'm trying to get at is that antitrust feels so reactionary, versus other more proactive methods that can help reveal true marginal costs.
Daycent
<industrial-organisation><auctions><competition>
Why does antitrust matter if we can just use auctions to get truthful reporting of marginal costs?
Daycent
# Why does antitrust matter if we can just use auctions to get truthful reporting of marginal costs?

(Asked by: username_0 on 2024-04-22)

Why does antitrust matter if we can just use auctions to get truthful reporting of marginal costs? Like, if I want to get an oligopoly market to truthfully price items at socially optimal marginal costs, then I should just conduct an auction each time I want to buy an item, and it will be incentive compatible for the oligopolists to truthfully report their marginal costs.

As a background, antitrust authorities help make sure that companies compete in a way that is good for consumers, especially in markets where there aren't many competitors. Typically the way they do this is by limiting market consolidation and preventing mergers / encouraging company splits. One idea to help solve this problem is to use a Vickrey auction to make companies report their true costs honestly.

In a typical Vickrey auction for one item where each bidder secretly tells the auctioneer how much they think the item is worth:

1. Each bidder sends in their own secret price based on what the item is worth to them.
2. The auctioneer picks the highest bidder to win the item.
3. The winner pays the amount of the second-highest bid.

This encourages everyone to bid honestly because they pay the second-highest price, not their own, which means there’s no benefit to lying about how much they value the item.

Imagine using this auction method in a market with only a few hospitals. It’s usually hard to get these hospitals to compete because there are so few of them, even when we have insurers that try to bargain prices with them. With a Vickrey auction, hospitals would bid to provide medical services, aiming to treat patients at the lowest cost.

1. Hospitals would submit bids based on the cost of treating patients.
2. The hospital with the lowest bid wins the right to treat the patients but gets paid the amount of the second-lowest bid.

This encourages hospitals to report their real costs honestly because if they bid too low, they might not cover their costs, but if they bid too high, they won’t win the contract. Auction theorists have generalized this to multi-unit auctions, with variable marginal costs and multiple winners (aka multiple hospitals win the right to treat a different number of patients at different costs), so it's a very flexible solution.

See Vijay Krishna, Auction Theory.

**Tags:** industrial-organisation, auctions, competition
> **Comments:**
> **username_1**: Getting a monopolist to truthfully report their marginal cost is not going to make them price goods at marginal cost. Also, what auction format do you have in mind?  
> **username_0**: well, we could use a 2nd price auction for the good, where all the market participants just participate in the auction in order to provide the good at the cheapest price. we buy the good from the one that reports the cheapest price, but then pay them according to the price of the 2nd cheapest option.  
> **username_2**: Congratulations, the winner of your auction has completed the pizza! It is available for pickup at Nelson Mandela Avenue 5, Harare, Zimbabwe. (See also non-homogeneous goods.) Other topics of interest might include non-constant marginal costs, long-term investments, and addig details to your question, as well as references to add context to and back up your claims.  
> **username_0**: haha, I love the snark. Thanks for always answering questions on stackexchange. I'll edit it.  
> **username_2**: Hi @Daycent! So I have, in fact, read Krishna's Auction Theory and know what a 2nd price auction is, but do you understand my other points? Would you treat equally the bids of a hospital 10 miles away and one 60 miles away from the patient? (Non-homogeneous goods.) Do you know, that if a firm has bought up all the MRI machine producers because there was no antitrust, then other hospitals will not be able to bid on providing MRI service? (Long-term investment.)  
> **username_0**: You're absolutely right that if the firm has bought up all the MRI machines, then that would be an issue. I totally agree that antitrust is an issue in that regard. However, typically those cases are rural markets where the issue isn't antitrust, but rather that there are no entrants, which is a different issue. I can think of several ways to resolve nonhomogenous goods. First, you can treat certain items as as-if homogenous (say that the patient is willing to consider any MRI that is within 10 mi. of their home), and conduct the auction in that format.  
> **username_0**: Second--and this would be more complicated--but you could have the insurer bundle consumers (similar to how ebay sells big boxes of miscellaneous goods) such that the average distance of each of these consumers to each bidder is the same.  
> **username_0**: I agree that they're both imperfect solutions to your replies, but I guess what I'm trying to get at is that antitrust feels so reactionary, versus other more proactive methods that can help reveal true marginal costs.  

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## 0 answers

