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 language | English |
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Pages (from-to) | 199-231 |
Number of pages | 33 |
Journal | B.E. Journal of Theoretical Economics |
Volume | 22 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2022 Jan 1 |
Keywords
- asymmetric auctions
- entry deterrence
- free-rider problem
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)