License auctions when winning bids are financed through debt
We study an auction where two licenses to operate on a new market are sold. Winners finance their bids on a competitive debt market. Due to limited liability, the amount of debt affects their behavior on the product market. In equilibrium, consumer prices are lower than with a beauty contest, where firms obtain their licenses for free. Winning bids are lower than in a model where firms have internal funds. Higher bids cannot be financed due to credit rationing. Expected net firm profits are strictly positive, although firms are a priori identical and have the same information.
Year of publication: |
2003
|
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Authors: | Haan, Marco A. ; Toolsema, Linda A. |
Institutions: | Faculteit Economie en Bedrijfskunde, Rijksuniversiteit Groningen |
Saved in:
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