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License Prices for Financially Constrained Firms

  • Roberto Burguet
  • R. Preston McAfee

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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  1. Jeremy Greenwood & R. Preston McAfee, 1991. "Externalities and Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 103-121.
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