NON-COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID

Authors


  • *We gratefully acknowledge a helpful conversation with Eric Maskin and the comments of several seminars and conference audiences, two anonymous referees and, especially, the suggestions of the Editor. The ideas and opinions expressed in this article are solely those of the authors and do not necessarily represent the views of CRA International and its staff.

Abstract

We examine the impact of potential entry on incumbent bidding behavior in license auctions, in both dynamic and sealed bid formats. Unlike sealed bid auctions, dynamic auctions reveal information about the identities of potential winners and allow bidders to revise their bids. This helps incumbents to coordinate their entry deterrence efforts. If entry is sufficiently costly for each incumbent, only the dynamic auction has an equilibrium where entry is deterred for sure. Numerical calculations suggest that, regardless of how costly entry is for each incumbent, sealed bid auctions can generate a higher probability of entry as well as a more efficient allocation.

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