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[…] Auction modeling is also useful in a merger setting. The major problem here is the loss of localized competition between companies which are engaged in sale of substitutes in a differentiated market of products. Taking into account theoretical models of oligopoly, an analyst can evaluate certain parameters that depict the process with the help of which the services and goods in a market are actually "auctioned." This technique has been applied in the last years with the aim to predict the hypothetical impact of different mergers in forest timber markets and in regard of hospital mergers.
The timber market case is a good illustration of this method. It includes oral auctions in which the winning bid of sellers is considered to be the highest price. These auctions are characterized by the valuations that companies make to win the auction and they depend on the size of firms because of scale economies and their distance and location from market because of costs for transportation. To win an auction smaller and more distant company must be able to outbid larger and closer timber mills which are certainly more economically favored. It is possible to use the actual information about winning and losing bids to evaluate the means and differences of the main bids distribution for every company taking into account the functional form of that distribution of bids. After the estimation of these distributions the effects of mergers or the effects of probable bidding cartels can be modeled by the use of the evaluated distributions of every potential bidder in the auction and the market shares (premerger). This process is conceptual because empirical analysis is capable to show distinctions in valuations among bidders (e.g., because of the distinctions in costs) and to show the established aspects of the bidding process in the auction (due to, for example, limitations in bidding eligibility). […]

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