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Does Auctioning of Entry Licences Affect Consumers Prices? An Experimental Study

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  • Offerman, T.J.S.
  • Potters, J.J.M.

    (Tilburg University, Center For Economic Research)

Abstract

On an increasing scale auctions are used to allocate the licenses tooperate on markets which are thought notsuited for free entry. According to standard economic arguments, thelicense fees paid at the auction will notaffect consumer prices since they constitute a sunk cost. Thisstandard view is not uncontested though. In thepresent paper we experimentally investigate two arguments for apotential upward effect of auctioning onprices: the incorporation of entry fees in prices due to the use ofmark-up pricing rules, and the tendency ofauctions to select the more collusive firms. Our results indicatethat auctioning increases the probability of highprices, and that this is mainly due to the use of mark-up pricingrules.
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Suggested Citation

  • Offerman, T.J.S. & Potters, J.J.M., 2000. "Does Auctioning of Entry Licences Affect Consumers Prices? An Experimental Study," Discussion Paper 2000-53, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:bf98ad9e-6700-4de3-8697-bdee340e54ce
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    Cited by:

    1. Harald Gruber, 2002. "Endogenous Sunk Costs in the Market for Mobile Telecommunications - The Role of Licence Fees," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 55-64.
    2. Daglish, Toby & Sağlam, Yiğit & Ho, Phuong, 2017. "Auctioning the Digital Dividend: A model for spectrum auctions," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 63-98.
    3. van Damme, E.E.C. & Pinkse, J., 2005. "Merger simulation analysis : An academic perspective," Other publications TiSEM 5101426e-e093-4dfe-b8f5-1, Tilburg University, School of Economics and Management.
    4. Janssen, Maarten C.W. & Karamychev, Vladimir A., 2007. "Selection effects in auctions for monopoly rights," Journal of Economic Theory, Elsevier, vol. 134(1), pages 576-582, May.
    5. Bohnet, Iris & Kubler, Dorothea, 2005. "Compensating the cooperators: is sorting in the prisoner's dilemma possible?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 61-76, January.

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