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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 School of Economics.
    • Handle: RePEc:bge:wpaper:224
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    References listed on IDEAS

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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. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.
    3. Nicolas Melissas, 2008. "Bidding and Drilling on Offshore Wildcat Tracts," Working Papers 0805, Centro de Investigacion Economica, ITAM.

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