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License Prices for Financially Constrained Firms

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  • Roberto Burguet
  • R. Preston McAfee

Abstract

It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers' point of view.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 351.

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Date of creation: Jun 2008
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Handle: RePEc:bge:wpaper:351

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Cited by:
  1. Carolyn Pitchik, 2006. "Budget-Constrained Sequential Auctions with Incomplete Information," Working Papers, University of Toronto, Department of Economics tecipa-230, University of Toronto, Department of Economics.
  2. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.
  3. Konrad, Kai A., 2010. "Information alliances in contests with budget limits," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism", Social Science Research Center Berlin (WZB) SP II 2010-21, Social Science Research Center Berlin (WZB).

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