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License auctions when winning bids are financed through debt

  • Haan, Marco A.
  • Toolsema, Linda A.

    (Groningen University)

We study an auction where two licenses to operate on a new market are sold. Winners finance their bids on a competitive debt market. Due to limited liability, the amount of debt affects their behavior on the product market. In equilibrium, consumer prices are lower than with a beauty contest, where firms obtain their licenses for free. Winning bids are lower than in a model where firms have internal funds. Higher bids cannot be financed due to credit rationing. Expected net firm profits are strictly positive, although firms are a priori identical and have the same information.

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File URL: http://irs.ub.rug.nl/ppn/253177618
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Paper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 200310.

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Date of creation: 2003
Date of revision:
Handle: RePEc:dgr:rugccs:200310
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  1. van Damme, E.E.C., 2002. "The European UMTS-auctions," Other publications TiSEM 6194adbb-6fa3-4fc0-ae52-a, Tilburg University, School of Economics and Management.
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