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

Author

Listed:
  • Biung-Ghi Ju

    (Department of Economics, Seoul National University, Seoul, Republic of Korea)

  • Seung Han Yoo

    (Department of Economics, Korea University, Seoul, Republic of Korea)

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.

Suggested Citation

  • Biung-Ghi Ju & Seung Han Yoo, 2018. "Entry Deterrence and Free Riding in License Auctions:Incumbent Heterogeneity and Monotonicity," Discussion Paper Series 1802, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1802
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1802.pdf
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    References listed on IDEAS

    as
    1. Michael Waldman, 1987. "Noncooperative Entry Deterrence, Uncertainty, and the Free Rider Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(2), pages 301-310.
    2. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    3. Richard Gilbert & Xavier Vives, 1986. "Entry Deterrence and the Free Rider Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(1), pages 71-83.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    entry deterrence; free-rider problem; asymmetric auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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