 The dynamics of bidding markets with financial constraintsPablo Beker and Angel Hernando-Veciana () Journal of Economic Theory, 2015, vol. 155, issue C, 234-261 Abstract: 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 and the opportunity cost of budgets is positive but arbitrarily low. First, firms keep small budgets and markups are high most of the time. Second, the dispersion of markups and “money left on the table” across procurement auctions hinges on differences, both endogenous and exogenous, in the availability of financial resources rather than on significant private information. Third, we explain why the empirical analysis of the size of markups based on the standard auction model may have a bias, downwards or upwards, positively correlated with the availability of financial resources. A numerical example illustrates that our model is able to generate a rich set of values for markups, bid dispersion and concentration. Keywords: Bidding markets; Financial constraints; Markups; Money left on the table; Industry dynamics; All pay auctions (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:155:y:2015:i:c:p:234-261 DOI: 10.1016/j.jet.2014.11.013 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.