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

Author

Listed:
  • Ju Biung-Ghi

    (Department of Economics, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul, 08826, Republic of Korea)

  • Yoo Seung Han

    (Department of Economics, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, 02841, 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

  • Ju Biung-Ghi & Yoo Seung Han, 2022. "Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(1), pages 199-231, January.
    • Handle: RePEc:bpj:bejtec:v:22:y:2022:i:1:p:199-231:n:2
    DOI: 10.1515/bejte-2020-0143
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    Keywords

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    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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