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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 service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers' point of view.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 351.

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Date of creation: Jun 2008
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Handle: RePEc:bge:wpaper:351
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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. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.
  2. Carolyn Pitchik, 1989. "Budget-Constrained Sequential Auctions With Incomplete Information," STICERD - Theoretical Economics Paper Series 201, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.

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