License Auctions When Winning Bids Are Financed Through Debt
AbstractWe study an auction where two licenses to operate on a new market are sold, and winning bidders finance their bids on the debt market. Higher bids imply higher debts, which affects product market competition. We compare our results to those of a beauty contest and a standard auction. For the case that debt induces firms to compete more aggressively, we find that consumer prices are lower, and expected firm profits are strictly positive although firms are a priori identical. When debt induces firms to compete less aggressively, we find that firms make zero profits, and consumer prices are higher.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Journal of Industrial Economics.
Volume (Year): 59 (2011)
Issue (Month): 2 (06)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821
Other versions of this item:
- Haan, M.A. & Toolsema, L.A., 2006. "License auctions when winning bids are financed through debt," Research Report 06F06, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Haan, Marco A. & Toolsema, Linda A., 2003. "License auctions when winning bids are financed through debt," CCSO Working Papers 200310, University of Groningen, CCSO Centre for Economic Research.
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