We rationalize the puzzling existence of binding quotas that are not fully utilized. Our model has its roots in Bhagwati (1965, in: R. Baldwin et al., eds., Trade, growth and the balance of payments: Essays in honor of G. Haberler (MIT Press, New York)) on tariffs/quotas equivalence and is related to the IO literature on preemption. We study the conditions that lead a monopolist, facing a quota-restricted market, to buy the quota licenses itself and the conditions under which they may remain unused. The divisibility of the quota is crucial for the monopolist to pre-emptively buy the quota. Furthermore, we study the implications of "use-it-or-lose-it" clauses commonly imposed on auctioned quotas.
- Endogenous-valuations auctions
- Quota equivalence