*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.
NON-COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID*
Article first published online: 24 MAY 2010
© 2010 The Authors. Journal compilation © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 58, Issue 2, pages 450–476, June 2010
How to Cite
VARMA, G. D. and LOPOMO, G. (2010), NON-COOPERATIVE ENTRY DETERRENCE IN LICENSE AUCTIONS: DYNAMIC VERSUS SEALED BID. The Journal of Industrial Economics, 58: 450–476. doi: 10.1111/j.1467-6451.2010.00415.x
- Issue published online: 24 MAY 2010
- Article first published online: 24 MAY 2010
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.