Entry Deterrence and Free Riding in License Auctions:Incumbent Heterogeneity and Monotonicity

This paper examines the free rider problem with heterogenous incumbents seeking a single license. We first establish monotonicity of equilibrium bids among the incumbents participating in preemption: an incumbent with a higher entry-loss rate has a greater free-riding incentive, choosing a lower deterring probability. We identify a condition for the existence of a series of equilibria where two or more incumbents with an identical entry-loss rate participate in randomized preemptive bidding. Among these equilibria, the entry probability increases in the number of participating incumbents, and the equilibrium with fully participating preemption admits the greatest free-riding incentive. A characterization for one leader and many followers is provided as an application for a partially participating equilibrium.