Working Paper: NBER ID: w16650
Authors: James W. Roberts; Andrew Sweeting
Abstract: Governments rescue private companies partly to prevent other firms from gaining excessive market power. However, if failing firms exit, new entry may limit remaining firms' market power if there are potential entrants who can be as effective competitors as the firms leaving the market. We quantify these effects in the case of the 1984 bailout of timber companies that faced substantial losses on existing federal timber contracts. We predict that the bailout substantially increased sale prices in subsequent auctions because firms that might have might have been induced to enter without the bailout tended to have relatively low values.
Keywords: bailouts; competition; timber industry; auctions
JEL Codes: D44; L20; L44; L73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 1984 bailout of timber companies (H12) | auction prices (D44) |
| 1984 bailout of timber companies (H12) | competition in subsequent auctions (D44) |
| exit of firms without bailout (G33) | revenues in subsequent auctions (D44) |
| bailout (H81) | entry of firms (L26) |
| entry of firms (L26) | auction revenues (D44) |
| bailout (H81) | preservation of competitive environment (L49) |
| marginal entrants (D43) | auction revenues (D44) |