Integrating the Structural Auction Approach and Traditional Measures of Market Power

represented by the right hand side of equation (2.9a). Denote this markdown by M.

However, if bid shading is not zero, then the markdown estimated with the NEIO
approach contains the “true” markdown (M) that the NEIO model seeks to explain plus
some bid shading δ_j∙ (δ_j∙ = Σδ_ij∕J). Denote this markdown byM~. Mathematically, the
relationship between M^~ and M is:

(2.10)                          M = M + δ_j,

where M^~ is the “mixed” markdown containing the “true“ markdown (M) that the NEIO
seeks to explain plus the average bid shading on J total cattle lots δ_j∙ (δ_j∙ = Σδ_ij∕J).

Therefore, in the presence of bid shading, the industry-pricing rule represented by

equation (2.4a) can be rewritten as:

Θ^~ is a “mixed” conjectural variation when bidders bid

...                        ⅝ < .T           .C .       ʃ                                              _

shading is not zero, δj = ∑ _j=1[F(p_ij^f )∕ f ( p_ij^f )(N_j -1)]∕J, and M =M - δ_j. The
relationship between the industry conjectural variation (Θ) in M (when there is no bid

shading) and the “mixed” conjectural variation (Θ^~) inM^~ (when there is bid shading) can
be expressed as:

which can be re-arranged to yield:

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