| This dissertation involves a theoretical examination and the empirical estimation of a two-stage sequential auction model. The focus is on revealing cities' objectives in their selection of a cable television operator, and on revealing the firms' strategic behavior during franchising. A game theoretic model of bidding behavior under various selection rules is introduced. Using the maximum likelihood approach, various specifications of the model are evaluated, including trinomial probit or joint determination of the firms' and cities' decisions.The game theoretic models discover that while competitive auctions cause firms to deviate from monopolistic behavior, only for certain selection rules and under restrictive assumptions do they move to the competitive market result. The trinomial probit model was applied, assuming that firms and cities make joint decisions, and corrected for selectivity biases inherent in sequential auctions. The empirics concur with the theoretical model in discovering that larger firms do have a higher likelihood of participating and winning. The trinomial probit concludes that the city's primary objective is to obtain a profitable franchisee to serve as a potent revenue source for the community. Also, cities are discovered to prefer collecting rents through payment in cash rather than payment in kind. The cities winner selection decision, however, fails the specification test of independence between the exogenous variables and the probit residuals. This is not inconsistent with the interpretation that unmeasureable criteria, possibly involving collusive or political preference factors correlated with the included regressors, also play an important role in determining auction outcomes. |
