License Auctions and Market Structure - Accueil.pdf

License Auctions and Market Structure HEIDRUN C. HOPPE Department of Economics University of Bonn Lennestr. 37, 53113 Bonn hoppe@uni-bonn.de PHILIPPE JEHIEL Paris-Jourdan Sciences Economiques and UCL, London jehiel@enpc.fr BENNY MOLDOVANU Department of Economics University of Bonn Lennestr. 37, 53113 Bonn mold@uni-bonn.de We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony. 1. Introduction License auctions shape the market structure of the respective indus- try. As a consequence, firms competing to acquire a license are not indifferent about the final form of the market structure (in particular about how many and which other firms are going to be licensed).1 This work was partly supported by the Max-Planck Research Prize. A coeditor and two referees made comments that greatly improved the quality of the exposition. We are also grateful for comments by participants at the confere