Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86332
Authors: 
Janssen, Maarten C.W.
Karamychev, Vladimir A.
Year of Publication: 
2007
Series/Report no.: 
Tinbergen Institute Discussion Paper 07-001/1
Abstract: 
This paper considers a government auctioning off multiple licenses to firms who compete in a market after the auction. Firms have different costs, and cost efficiency is private information at the auction stage and the market competition stage. If only one license is auctioned, standard results say that the most efficient firm wins the auction (license) as it will get the highest profit in the aftermarket, i.e., it has the highest valuation for the license. This paper argues that this result does not generalize to the case of multiple licenses and aftermarket competition. In particular, we determine conditions under which auctions may select inefficient firms and therefore lead to an inefficient allocation of resources. Strategic interactions in the aftermarket, in particular firms’ preferences to compete with the least cost-efficient firms rather than with the most efficient firms, are responsible for our result.
Subjects: 
Auctions
cost-efficiency
aftermarkets
JEL: 
D43
L11
L13
Document Type: 
Working Paper

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