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

  • Azacis, Helmuts
  • Burguet, Roberto

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Paul Klemperer, 2000. "What Really Matters in Auction Design," Economics Series Working Papers 2000-W26, University of Oxford, Department of Economics.
  2. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  3. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers.
  4. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  5. Burguet, Roberto & Sakovics, Jozsef, 1996. "Reserve Prices without Commitment," Games and Economic Behavior, Elsevier, vol. 15(2), pages 149-164, August.
  6. repec:cup:cbooks:9780521551847 is not listed on IDEAS
  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. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  10. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  11. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  12. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms -super-1," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1085-1111.
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