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License Prices for Financially Constrained Firms

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  • Roberto Burguet
  • R. Preston McAfee

Abstract

It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers' point of view.

Suggested Citation

  • Roberto Burguet & R. Preston McAfee, 2008. "License Prices for Financially Constrained Firms," Working Papers 351, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:351
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    References listed on IDEAS

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    Cited by:

    1. Francesco Giovannoni & Miltiadis Makris, 2014. "Reputational Bidding," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 693-710, August.
    2. Kai Konrad, 2012. "Information alliances in contests with budget limits," Public Choice, Springer, vol. 151(3), pages 679-693, June.
    3. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
    4. 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.
    5. Nicolas Melissas, 2008. "Bidding and Drilling on Offshore Wildcat Tracts," Working Papers 0805, Centro de Investigacion Economica, ITAM.
    6. Sano, Ryuji, 2023. "Post-auction investment by financially constrained bidders," Journal of Economic Theory, Elsevier, vol. 213(C).
    7. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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