License Prices for Financially Constrained Firms


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.
Published as: On societies choosing social outcomes, and their memberships: internal stability and consistency in Theory and Decision , Vol. 84, No. 1, 83-97, January, 2018