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License Prices for Financially Constrained Firms

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  • 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.

Suggested Citation

  • Roberto Burguet & R. Preston McAfee, 2005. "License Prices for Financially Constrained Firms," Working Papers 224, Barcelona Graduate School of Economics.
    • Handle: RePEc:bge:wpaper:224
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    References listed on IDEAS

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    Citations

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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.

    More about this item

    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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