Does Auctioning of Entry Licenses Affect Consumer Prices?: An Experimental Study

CenTER for Economic Research Working Paper No. 2000-53

45 Pages Posted: 14 Nov 2000

See all articles by Theo Offerman

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Johannes (Jan) J. M. Potters

Tilburg University - CentER

Date Written: May 2000

Abstract

On an increasing scale auctions are used to allocate the licenses to operate on markets which are thought not suited for free entry. According to standard economic arguments, the license fees paid at the auction will not affect consumer prices since they constitute a sunk cost. This standard view is not uncontested though. In the present paper we experimentally investigate two arguments for a potential upward effect of auctioning on prices: the incorporation of entry fees in prices due to the use of mark-up pricing rules, and the tendency of auctions to select the more collusive firms. Our results indicate that auctioning increases the probability of high prices, and that this is mainly due to the use of mark-up pricing rules.

Suggested Citation

Offerman, Theo and Potters, Johannes (Jan) J. M., Does Auctioning of Entry Licenses Affect Consumer Prices?: An Experimental Study (May 2000). CenTER for Economic Research Working Paper No. 2000-53. Available at SSRN: https://ssrn.com/abstract=246966 or http://dx.doi.org/10.2139/ssrn.246966

Theo Offerman (Contact Author)

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Johannes (Jan) J. M. Potters

Tilburg University - CentER ( email )

Department of Economics
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 8204 (Phone)
+31 13 466 3042 (Fax)

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