We develop a model of bidding markets with financial constraints à la Che and Gale [15] in which two firms choose their budgets optimally and we extend it to a dynamic setting over an infinite horizon. We provide three main results for the case in which the exogenous cash-flow is not too large...

This paper studies the impact of financial constraints on the persistency of high markups in a class of markets, including most of public procurement, known by practitioners as bidding markets. We develop an infinite horizon model in which two firms optimally reinvest working capital and bid for...