Bailouts and the Preservation of Competition
AbstractGovernments rescue private companies partly to prevent other firms from gaining excessive market power. However, if failing firms exit, new entry may limit remaining firms' market power if there are potential entrants who can be as effective competitors as the firms leaving the market. We quantify these effects in the case of the 1984 bailout of timber companies that faced substantial losses on existing federal timber contracts. We predict that the bailout substantially increased sale prices in subsequent auctions because firms that might have might have been induced to enter without the bailout tended to have relatively low values.
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Date of creation: Dec 2010
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Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
- L73 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Forest Products
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- Jonathan Levin & Susan Athey & Enrique Seira, 2004.
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Working Papers, Fondazione Eni Enrico Mattei
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- Hanming Fang & Xun Tang, 2013. "Inference of Bidders’ Risk Attitudes in Ascending Auctions with Endogenous Entry," NBER Working Papers 19435, National Bureau of Economic Research, Inc.
- Nathan Yang, 2011. "An Empirical Model of Industry Dynamics with Common Uncertainty and Learning from the Actions of Competitors," Working Papers, NET Institute 11-16, NET Institute.
- Hanming Fang & Xun Tang, 2011. "Inference of Biddersâ€™ Risk Attitudes in Ascending Auctions with Endogenous Entry, Second Version," PIER Working Paper Archive 12-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 17 Apr 2012.
- Hanming Fang & Xun Tang, 2013. "Inference of Biddersâ€™ Risk Attitudes in Ascending Auctions with Endogenous Entry," PIER Working Paper Archive 13-056, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- ErtaÃ§, Seda & HortaÃ§su, Ali & Roberts, James W., 2011. "Entry into auctions: An experimental analysis," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 29(2), pages 168-178, March.
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