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License auctions when winning bids are financed through debt

Author

Listed:
  • Haan, M.A.
  • Toolsema, L.A.

    (Groningen University)

Abstract

We 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.

Suggested Citation

  • 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).
    • Handle: RePEc:gro:rugsom:06f06
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    File URL: http://irs.ub.rug.nl/ppn/296644579
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    References listed on IDEAS

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    1. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
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    Cited by:

    1. Kuroda, Toshifumi & Baquero Forero, Maria del Pilar, 2017. "The effects of spectrum allocation mechanisms on market outcomes: Auctions vs beauty contests," Telecommunications Policy, Elsevier, vol. 41(5), pages 341-354.
    2. Emiel Maasland & Sander Onderstal, 2006. "Going, Going, Gone! A Swift Tour of Auction Theory and its Applications," De Economist, Springer, vol. 154(2), pages 197-249, June.
    3. Roberto Burguet & R. McAfee, 2009. "License prices for financially constrained firms," Journal of Regulatory Economics, Springer, vol. 36(2), pages 178-198, October.
    4. Thornton Matheson & Patrick Petit, 2021. "Taxing telecommunications in developing countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 248-280, February.
    5. Haan, Marco A. & Toolsema, Linda A., 2008. "The strategic use of debt reconsidered," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 616-624, March.
    6. Wang Tao & Wang Ruqu, 2018. "Limited Liability and High Bids in English Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-12, July.

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