License Auctions When Winning Bids Are Financed Through Debt
AbstractWe study an auction where two licenses to operate on a new market are sold. Winners finance their bids on a competitive debt market. Due to limited liability, the amount of debt affects their behavior on the product market. In equilibrium, consumer prices are lower than with a beauty contest, where firms obtain their licenses for free. Winning bids are lower than in a model where firms have internal funds. Higher bids cannot be financed due to credit rationing. Expected net firm profits are strictly positive, although firms are a priori identical and have the same information.
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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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