How to Auction a Bottleneck Monopoly When Underhand Vertical Agreements are Possible

A seaport is awarded in a Demsetz auction to the operator bidding the lowest cargo-handling fee. The competitive auction is irrelevant if the port operator integrates into shipping and sabotages competitors, thus providing a motive for a ban on vertical integration. The paper shows that such a ban increases welfare even when underhand agreements with shippers are possible. For this result to attain, the auction must be combined with a sufficiently high floor on the cargo-handling fee that operators can bid in the auction. With no floor, a Demsetz auction is worse than an unregulated bottleneck monopoly

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Year of publication:	2005
Authors:	Engel, Eduardo ; Galetovic P., Alexander ; Fischer, Ronald
Publisher:	[S.l.] : SSRN
Subject:	Auktion \| Auction \| Theorie \| Theory \| Vertikale Integration \| Vertical integration \| Natürliches Monopol \| Natural monopoly \| Regulierung \| Regulation \| Hafen \| Port \| Chile \| Kartellrecht \| Antitrust law \| Engpass \| Bottleneck