Persistent Markups in Bidding Markets with Financial Constraints ∗

  title={Persistent Markups in Bidding Markets with Financial Constraints ∗},
  author={Pablo F. Beker and Warwick {\'A}ngel Hernando-Veciana},
This 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… CONTINUE READING

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