Bailouts and the Preservation of Competition
Governments rescue private companies partly to prevent other firms from gaining excessive market power. However, if failing firms exit, new entry may limit remaining firms' market power if there are potential entrants who can be as effective competitors as the firms leaving the market. We quantify these effects in the case of the 1984 bailout of timber companies that faced substantial losses on existing federal timber contracts. We predict that the bailout substantially increased sale prices in subsequent auctions because firms that might have might have been induced to enter without the bailout tended to have relatively low values.
|Date of creation:||Dec 2010|
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- Jonathan Levin & Susan Athey & Enrique Seira, 2004.
"Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions,"
2004.142, Fondazione Eni Enrico Mattei.
- Susan Athey, 2005. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Theory workshop papers 658612000000000098, UCLA Department of Economics.
- Susan Athey & Jonathan Levin & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Levine's Bibliography 122247000000000524, UCLA Department of Economics.