Limited Liability and High Bids in English Auctions

Wang Tao () and Wang Ruqu ()
Additional contact information
Wang Tao: School of Economics, Zhejiang University, Hangzhou, Zhejiang, China
Wang Ruqu: School of Economics, Zhejiang University, Hangzhou, Zhejiang, China

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 12

Abstract: In this paper, we investigate how limited liability affects firms’ bidding behavior in license auctions. We focus on a model where firms first seek financing from banks, then bid for the licenses, and the winning firms set prices in a product market with uncertain demand. In a model of one license, the winning firm becomes a monopoly. A higher bid induces a higher product price. In a model of two licenses, a higher bid provides a positive externality to all other firms. In both models, bids are extremely high in the English auction, and the English auction always generates more revenue than the first-price/discriminatory auction.

Keywords: license bidding; limited liability; auctions; externality; revenue comparison (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/bejte-2016-0152 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:18:y:2018:i:2:p:12:n:10

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.1515/bejte-2016-0152

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().