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License auctions when winning bids are financed through debt

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

    (Groningen University)

Abstract

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.

Suggested Citation

  • Haan, Marco A. & Toolsema, Linda A., 2003. "License auctions when winning bids are financed through debt," CCSO Working Papers 200310, University of Groningen, CCSO Centre for Economic Research.
  • Handle: RePEc:gro:rugccs:200310
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    References listed on IDEAS

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    Cited by:

    1. Kuroda, Toshifumi & Baquero Forero, Maria del Pilar, 2017. "The effects of spectrum allocation mechanisms on market outcomes: Auctions vs beauty contests," Telecommunications Policy, Elsevier, vol. 41(5), pages 341-354.
    2. Emiel Maasland & Sander Onderstal, 2006. "Going, Going, Gone! A Swift Tour of Auction Theory and its Applications," De Economist, Springer, vol. 154(2), pages 197-249, June.
    3. Roberto Burguet & R. McAfee, 2009. "License prices for financially constrained firms," Journal of Regulatory Economics, Springer, vol. 36(2), pages 178-198, October.
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    5. Haan, Marco A. & Toolsema, Linda A., 2008. "The strategic use of debt reconsidered," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 616-624, March.
    6. Wang Tao & Wang Ruqu, 2018. "Limited Liability and High Bids in English Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-12, July.

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