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License Prices for Financially Constrained Firms

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Listed author(s):
  • Roberto Burguet
  • R. Preston McAfee

Abstract

It is often alleged that high auction prices inhibit build-out. We investigate this claim under the extreme case of budget-constrained bidders. Low prices maximize overall the gains from trade. If there are n licenses, the price where the budget constraint just binds maximizes consumer surplus if the elasticity of demand is less than one plus 1/n. If demand is elastic, auctions maximize consumer surplus when build-out expenditure greater than one over the elasticity of demand. This appears to be true for most of the auctions run.

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File URL: http://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/224.pdf
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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 224.

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Date of creation: Jul 2005
Handle: RePEc:bge:wpaper:224
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Find related papers by JEL classification:
  • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
  • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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Cited by:

  1. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
  2. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.
  3. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.

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