Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity

Ju Biung-Ghi () and Seung Han Yoo
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Ju Biung-Ghi: Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul, 08826, Republic of Korea

The B.E. Journal of Theoretical Economics, 2022, vol. 22, issue 1, 199-231

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.

Keywords: entry deterrence; free-rider problem; asymmetric auctions (search for similar items in EconPapers)
JEL-codes: D44 D47 L13 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Entry Deterrence and Free Riding in License Auctions:Incumbent Heterogeneity and Monotonicity (2018)
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DOI: 10.1515/bejte-2020-0143

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