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Does Auctioning of Entry Licenses affect Consumer Prices? An Experimental Study

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  • Theo Offerman

    ()
    (CREED, University of Amsterdam)

  • Jan Potters

    (CentER, Tilburg University)

Abstract

On an increasing scale auctions are used to allocate the licenses tooperate on markets which are thought notsuited for free entry. According to standard economic arguments, thelicense fees paid at the auction will notaffect consumer prices since they constitute a sunk cost. Thisstandard view is not uncontested though. In thepresent paper we experimentally investigate two arguments for apotential upward effect of auctioning onprices: the incorporation of entry fees in prices due to the use ofmark-up pricing rules, and the tendency ofauctions to select the more collusive firms. Our results indicatethat auctioning increases the probability of highprices, and that this is mainly due to the use of mark-up pricingrules.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-046/1.

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Date of creation: 06 Jun 2000
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Handle: RePEc:dgr:uvatin:20000046

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Cited by:
  1. Janssen, Maarten C.W., 2006. "Auctions as coordination devices," European Economic Review, Elsevier, vol. 50(3), pages 517-532, April.
  2. Maarten C.W. Janssen, 2003. "Auctions as Collusion Devices," Tinbergen Institute Discussion Papers 03-017/1, Tinbergen Institute.
  3. Harald Gruber, 2002. "Endogenous Sunk Costs in the Market for Mobile Telecommunications - The Role of Licence Fees," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 55-64.
  4. Bohnet, Iris & K├╝bler, Dorothea, 2000. "Compensating the cooperators: Is sorting in the prisoner's dilemma possible?," SFB 373 Discussion Papers 2001,2, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Maarten C.W. Janssen & Vladimir A. Karamychev, 2005. "Auctions, Market Prices and the Risk Attitude Effect," Tinbergen Institute Discussion Papers 05-025/1, Tinbergen Institute.
  6. Damme, E.E.C. van & Pinkse, J., 2005. "Merger Simulation Analysis: An Academic Perspective," Discussion Paper 2005-013, Tilburg University, Tilburg Law and Economic Center.

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