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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.

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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
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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. Carolyn Pitchik, 2008. "Budget-Constrained Sequential Auctions with Incomplete Information," Working Papers tecipa-342, University of Toronto, Department of Economics.
  2. Konrad, Kai A., 2012. "Information alliances in contests with budget limits," Munich Reprints in Economics 22072, University of Munich, Department of Economics.
  3. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.

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