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Bailouts and the Preservation of Competition


  • James W. Roberts
  • Andrew Sweeting


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.

Suggested Citation

  • James W. Roberts & Andrew Sweeting, 2010. "Bailouts and the Preservation of Competition," NBER Working Papers 16650, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16650
    Note: IO

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    References listed on IDEAS

    1. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei.
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    Cited by:

    1. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, vol. 180(2), pages 198-216.
    2. Nathan Yang, 2011. "An Empirical Model of Industry Dynamics with Common Uncertainty and Learning from the Actions of Competitors," Working Papers 11-16, NET Institute.
    3. Ertaç, Seda & Hortaçsu, Ali & Roberts, James W., 2011. "Entry into auctions: An experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 168-178, March.
    4. Tong Li & Jingfeng Lu & Li Zhao, 2015. "Auctions with selective entry and risk averse bidders: theory and evidence," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 524-545, September.
    5. Hanming Fang & Xun Tang, 2011. "Inference of Bidders’ Risk Attitudes in Ascending Auctions with Endogenous Entry, Second Version," PIER Working Paper Archive 12-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 17 Apr 2012.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L73 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Forest Products

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