License Prices for Financially Constrained Firms

Roberto Burguet and Preston McAffee

No 224, Working Papers from Barcelona Graduate School of Economics

Abstract: It is often alleged that high auction prices inhibit build-out. We investigate this claim under the extreme case of budget-constrained bidders. Low prices maximize overall the gains from trade. If there are n licenses, the price where the budget constraint just binds maximizes consumer surplus if the elasticity of demand is less than one plus 1/n. If demand is elastic, auctions maximize consumer surplus when build-out expenditure greater than one over the elasticity of demand. This appears to be true for most of the auctions run.

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Date: 2005-07
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http://research.barcelonagse.eu/tmp/working_papers/224.pdf (application/pdf)

Related works:
Journal Article: License prices for financially constrained firms (2009)
Working Paper: License Prices for Financially Constrained Firms (2008)
Working Paper: License Prices for Financially Constrained Firms (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:bge:wpaper:224

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