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Incumbency and entry in license auctions: The Anglo-Dutch auction meets another simple alternative

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  • Azacis, Helmuts
  • Burguet, Roberto

Abstract

The existence of ex-ante strong incumbents may constitute a barrier to entry in auctions for goods such as licenses. Favoring the allocation to entrants is a way to induce entry and thus create competition. Designs such as the Anglo-Dutch auction have been proposed with this goal in mind. We first show that the Anglo-Dutch auction does indeed foster entry and increases the revenues of the seller. However, we argue that a more effective way could be to stage the allocation of the good so that each stage reveals information about the participants. We show that a sequence of English auctions, with high reserve prices in early rounds, fulfils this property and is more efficient than any one-stage entry auction. Moreover, it also outperforms the Anglo-Dutch auction in terms of seller's revenues.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 3 (May)
Pages: 730-745

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Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:730-745

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Web page: http://www.elsevier.com/locate/inca/505551

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  1. Klemperer, Paul, 2002. "How (not) to run auctions: The European 3G telecom auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 829-845, May.
  2. Burguet, Roberto & Sakovics, Jozsef, 1996. "Reserve Prices without Commitment," Games and Economic Behavior, Elsevier, vol. 15(2), pages 149-164, August.
  3. repec:wop:humbsf:2000-72 is not listed on IDEAS
  4. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA.
  5. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  6. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  7. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
  8. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  9. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721.
  10. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  11. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms -super-1," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1085-1111.
  12. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
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Cited by:
  1. van Bochove, Christiaan & Boerner, Lars & Quint, Daniel, 2012. "Anglo-Dutch premium auctions in eighteenth-century Amsterdam," Discussion Papers 2012/3, Free University Berlin, School of Business & Economics.
  2. Gary Madden & Erik Bohlin & Thien Tran & Aaron Morey, 2014. "Spectrum Licensing, Policy Instruments and Market Entry," Review of Industrial Organization, Springer, vol. 44(3), pages 277-298, May.

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