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 InfoPaper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 06F06.
Date of creation: 2006
Date of revision:
Other versions of this item:
- Marco A. Haan & Linda A. Toolsema, 2011. "License Auctions When Winning Bids Are Financed Through Debt," Journal of Industrial Economics, Wiley Blackwell, vol. 59(2), pages 254-281, 06.
- 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.
- NEP-ALL-2006-07-09 (All new papers)
- NEP-COM-2006-07-09 (Industrial Competition)
- NEP-FMK-2006-07-09 (Financial Markets)
- NEP-MIC-2006-07-09 (Microeconomics)
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