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Incumbency and Entry in Licence Auctions: The Anglo-Dutch Auctions Meets other Simple Alternatives

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  • Helmuts Äzacis
  • Roberto Burguet

Abstract

The existence of ex-ante strong incumbents is a barrier to entry in auctions for goods such as licenses. Introducing inefficiencies that favor 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 indeed the Anglo-Dutch auction fosters 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, is a procedure with this property that is more efficient than any one-stage entry auction. Moreover, it also dominates the Anglo-Dutch auction in terms of seller's revenues.

Suggested Citation

  • Helmuts Äzacis & Roberto Burguet, 2005. "Incumbency and Entry in Licence Auctions: The Anglo-Dutch Auctions Meets other Simple Alternatives," Working Papers 223, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:223
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    References listed on IDEAS

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    1. Caillaud, Bernard & Mezzetti, Claudio, 2004. "Equilibrium reserve prices in sequential ascending auctions," Journal of Economic Theory, Elsevier, vol. 117(1), pages 78-95, July.
    2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, December.
    3. 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.
    4. Burguet, Roberto & Sakovics, Jozsef, 1996. "Reserve Prices without Commitment," Games and Economic Behavior, Elsevier, vol. 15(2), pages 149-164, August.
    5. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, pages 585-599.
    6. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, pages 169-189.
    7. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, pages 169-189.
    8. Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
    9. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
    10. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
    11. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    12. Vasiliki Skreta, 2006. "Sequentially Optimal Mechanisms -super-1," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1085-1111.
    13. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May.
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    Cited by:

    1. Gary Madden & Aaron Morey & Erik Bohlin, 2012. "Regulator Incentives and Third Generation National Mobile Telecommunications Market Entry," Chapters,in: Regulation and the Performance of Communication and Information Networks, chapter 11 Edward Elgar Publishing.
    2. Gary Madden & Erik Bohlin & Thien Tran & Aaron Morey, 2014. "Spectrum Licensing, Policy Instruments and Market Entry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(3), pages 277-298, May.
    3. 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.

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