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Incumbency and Entry in License Auctions: The Anglo-Dutch Auction Meets Other Simple Alternatives

The existence of ex-ante strong incumbents may constitute 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 eective 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.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2005/11.

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Length: 32 pages
Date of creation: Dec 2005
Date of revision:
Publication status: Published in International Journal of Industrial Organization , 26(3), pp. 730-745, May 2008
Handle: RePEc:cdf:wpaper:2005/11
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Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers

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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. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  3. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  4. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers.
  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. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  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. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  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:9780521551847 is not listed on IDEAS
  11. Burguet, Roberto & Sakovics, Jozsef, 1996. "Reserve Prices without Commitment," Games and Economic Behavior, Elsevier, vol. 15(2), pages 149-164, August.
  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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