Entry deterrence and free riding in license auctions: Incumbent heterogeneity and monotonicity

Biung Ghi Ju, Seung Han Yoo

Research output: Contribution to journalArticlepeer-review

Abstract

We examine free riding for entry deterrence in license auctions with heterogeneous incumbents. We establish the monotonicity of randomized preemptive bidding equilibria: an incumbent with a higher entry-loss rate has greater free-riding incentive, choosing a lower deterring probability. We then identify conditions for the existence of a series of fully or partially participating equilibria such that two or more incumbents with bounded heterogeneity in their entry-loss rates participate in randomized preemptive bidding. As an application, we examine a simple case of a bipartite group of participating incumbents consisting of one “leader” and many “followers”. We show that the policy of limiting the leader’s participation (set-asides for entrants, limiting participation of incumbents with excessive market shares, etc.) may or may not increase entry probability.

Original languageEnglish
JournalB.E. Journal of Theoretical Economics
DOIs
Publication statusAccepted/In press - 2021
Externally publishedYes

Keywords

  • Asymmetric auctions
  • Entry deterrence
  • Free-rider problem

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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