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License auctions when winning bids are financed through debt

Haan, M. A. & Toolsema-Veldman, L., Jun-2011, In : Journal of Industrial Economics. 59, 2, p. 254-281 28 p.

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  • License auctions when winning bids are financed through debt

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DOI

We study an auction where two licenses to operate on a new market are sold and winning bidders finance their bids on the debt market. Higher bids imply higher debts which affects product market competition. When debt induces firms to compete more aggressively, retail prices are lower than in a model without debt, as are auction revenues. When debt induces firms to compete less aggressively, retail prices are higher than in a model without debt, and the effect on auction revenues is ambiguous. Net firm profits are always higher than in a model without debt due to endogenous credit rationing.

Original languageEnglish
Pages (from-to)254-281
Number of pages28
JournalJournal of Industrial Economics
Volume59
Issue number2
Publication statusPublished - Jun-2011

    Keywords

  • TELECOM LICENSES, EXTERNALITIES, OLIGOPOLY, DESIGN, RIGHTS

ID: 1853345