No, it's not that you allow it but stop it later, more that gentle mouthing is acceptable, but once they start getting too hard (usually because they get excited), then stop it and walk away. Later when the puppy learns that hard biting is unacceptable you can move to stop it completely. All you are doing is continuing with the lessons learned from their littermates. In a litter, there is much play biting. If a puppy bites too hard, the other puppy may squeal, will walk away and game ends.... the puppy that has bitten learns that if he bites too hard, it is the end of the game.

The other think to remember is that puppies generally have enough natural excitement. Like children and babies, when over excited or over tired, they go over the top. When this happens, simply give them some time out in their crate or wherever they are sleeping and allow them to calm down.