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Bidding markets with financial constraints

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Beker, Pablo and Hernando-Veciana, Angel (2013) Bidding markets with financial constraints. Working Paper. Coventry, UK: University of Warwick, Department of Economics. Warwick economics research papers series (TWERPS), Volume 2013 (Number 1017).

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Abstract

We develop a model of bidding markets with financial constraints a la Che and Gale (1998b) in which two firms optimally choose their budgets. First, we provide an
alternative explanation for the dispersion of markups and “money left on the table” across procurement auctions. Interestingly, this explanation does not hinge on significant private information but on differences, both endogenous and exogenous, in the availability of financial resources. Second, we explain why the empirical analysis of the size of markups may be biased downwards or upwards with a bias positively correlated with the availability of financial resources when the researcher assumes that the data are generated by the standard auction model. Third, we show that large
concentration and persistent asymmetries in market shares together with occasional leadership reversals can arise as a consequence of the firms internal financial decisions even in the absence of exogenous shocks.

Item Type: Working or Discussion Paper (Working Paper)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Economics -- Mathematical models , Business enterprises -- Finance, Market share
Series Name: Warwick economics research papers series (TWERPS)
Publisher: University of Warwick, Department of Economics
Place of Publication: Coventry, UK
Official Date: 24 January 2013
Dates:
DateEvent
24 January 2013Published
Volume: Volume 2013
Number: Number 1017
Number of Pages: 41
Status: Not Peer Reviewed
Access rights to Published version: Open Access (Creative Commons)
Funder: Fundación Ramón Areces, Spain. Ministerio de Ciencia e Innovación (MICINN)

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