License prices for financially constrained firms
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It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers’ point of view.
KeywordsFinancing constraints 3G auctions Licenses Budget constraints Service deployment Rollout
JEL ClassificationsL51 D45
Burguet acknowledges partial financial support from BGSE Research Network and the Generalitat de Catalunya, and from the Spanish Ministry of Education and Science, project SEJ2005-01427 and ECO2008-01850. We thank two knowledgeable referees for assistance.
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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