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Persistent markups in bidding markets with financial constraints

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dc.affiliation.dptoUC3M. Departamento de Economíaes
dc.contributor.authorBeker, Pablo F.
dc.contributor.authorHernando-Veciana, Ángel
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned2011-10-26T14:09:43Z
dc.date.accessioned2013-01-15T18:32:43Z
dc.date.available2013-01-15T18:32:43Z
dc.date.issued2011-10-26
dc.date.modified2011-12-7
dc.description.abstractThis paper studies the impact of financial constraints on the persistency of high markups in a class of markets, including public procurement, known by practitioners as bidding markets. We develop an infinite horizon model in which two firms optimally reinvest working capital and bid for a procurement contract each period. Working capital is constrained by the firm's cash from previous period and some exogenous cash flow, it is costly and it increases the set of acceptable bids. We argue that the latter is a natural consequence of the presence of progress payments or the existence of moral hazard. We say that the firm is (severely) financially constrained if its working capital is such that only bids (substantially) above production cost are acceptable. We show that markups are positive (high) if and only if one firm is (severely) financially constrained. Our main result is that markups are persistently high because one firm is severely financially constrained most of the time.
dc.format.mimetypeapplication/pdf
dc.format.mimetypetext/plain
dc.identifier.issn2340-5031
dc.identifier.repecwe1133
dc.identifier.urihttp://hdl.handle.net/10016/12410
dc.identifier.uxxiDT/0000000914
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working papers. Economics
dc.relation.ispartofseries11-33
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEconomía
dc.subject.jelL13
dc.subject.jelD43
dc.subject.jelD44
dc.subject.otherBidding markets
dc.subject.otherFinancial constraints
dc.subject.otherMarkups
dc.titlePersistent markups in bidding markets with financial constraints
dc.typeworking paper*
dc.type.hasVersionSMUR*
dspace.entity.typePublication
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