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Bidding Markets with Financial Constraints

Author

Listed:
  • Beker, Pablo

    (Department of Economics, University of Warwick)

  • Hernando-Veciana, Angel

    (Universidad Carlos III de Madrid)

Abstract

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on di?erences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks. JEL classification: bidding markets ; ?nancial constraints ; markups ; money left on the table ; market shares ; industry dynamics JEL codes: L13, D43, D44

Suggested Citation

  • Beker, Pablo & Hernando-Veciana, Angel, 2013. "Bidding Markets with Financial Constraints," The Warwick Economics Research Paper Series (TWERPS) 1017, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:1017
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2013/twerp_1017_beker.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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