Engel E., Fisher R., Galetovic A., (2004), How to Auction a Bottleneck Monopoly when Underhand Agreements are Possible, Journal of Industrial Economics, vol. 52, 427-455

Abstract

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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