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License auctions with exit (and entry) options: Alternative remedies for the exposure problem

  • Hu, Luke
  • Wolfstetter, Elmar G.

Inspired by some spectrum auctions, we consider a stylized license auction with incumbents and one entrant. Whereas the entrant values only the bundle of several units (synergy), incumbents are subject to non-increasing demand. The seller proactively encourages entry and restricts incumbent bidders. In this framework, an English clock auction gives rise to an exposure problem that distorts efficiency and impairs revenue. We consider three remedies: a (constrained) Vickrey package auction, an English clock auction with exit option that allows the entrant to annul his bid, and an English clock auction with exit and entry option that lifts the bidding restriction if entry failed.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 394.

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Date of creation: Dec 2012
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Handle: RePEc:trf:wpaper:394
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  1. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers.
  2. Vijay Krishna & Robert Rosenthal, 1995. "Simultaneous Auctions with Synergies," Game Theory and Information 9503004, EconWPA.
  3. Ausubel Lawrence M & Milgrom Paul R, 2002. "Ascending Auctions with Package Bidding," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, August.
  4. van Damme, E.E.C., 2002. "The European UMTS-auction," Discussion Paper 2002-100, Tilburg University, Center for Economic Research.
  5. Robert W. Rosenthal & Ruqu Wang, 1995. "Simultaneous Auctions with Synergies and Common Values," Papers 0060, Boston University - Industry Studies Programme.
  6. Jeremy Bulow & Jonathan Levin & Paul Milgrom, 2009. "Winning Play in Spectrum Auctions," NBER Working Papers 14765, National Bureau of Economic Research, Inc.
  7. Veronika Grimm & Frank Riedel & Elmar G. Wolfstetter, 2001. "The Third Generation (UMTS) Spectrum Auction in Germany," CESifo Working Paper Series 584, CESifo Group Munich.
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