License prices for financially constrained firms

It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers’ point of view

A Welfare Analysis of Spectrum Allocation Policies

Analysis of spectrum allocation policies in the economics literature focuses on competitive bidding for wireless licenses. Auctions generating high bids, as in Germany and the UK, are identified as "successful," while those producing lower receipts, as in Switzerland and the Netherlands, are deemed "fiascoes." Yet, even full and costless extraction of license rents does not map directly to social welfare, because spectrum policies creating rents impose social costs. For example, rules favoring monopoly market structure predictably increase license values, but reduce welfare. This paper attempts to shift analytical focus to the relationship between spectrum policy (including license auctions) and efficiency in output markets. In cross-country comparisons of performance metrics in mobile telephone service markets, empirical estimates suggest that countries that auction licenses do not achieve lower prices or higher levels of output than other nations. Rather, countries allocating greater bandwidth to licensed operators and achieving more competitive market structures realize demonstrable social welfare benefits. These gains generally dominate efficiencies associated with license sales. Policies to increase auction revenues, such as reservation prices and subsidies for weak bidders, should be evaluated in this light.

Implementing Efficient Market Structure

This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clark-Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms generally avoid budget deficits and prevent excessive entry.Mechanism design, natural oligopoly, auctions, entry

Implementing Efficient Market Structure

This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke--Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms generally avoid budget deficits and prevent excessive entry.

postbid market interaction and auction choice

We study the influence of product market competition on the first-price sealed auction and the English ascending auction with independent cost types. Bidders, valuing the license basing on the information released in the first stage license bidding game and the possible game they will play in the product market, care about not only whether they can win and thus how much to bid, but also the information released in the auction when they win. As in the English ascending auction, all bidders are able to constantly adjust their belief about their potential rival’s cost distribution, and the higher the bid goes, the lower the potential rival’s cost, the lower the expected gain from winning a license, thus bidders will keep downgrade the value of license and bid more conservatively and the government will generate lower expected revenue from the English auction than in first-price sealed auction. In particular, if the government uses the English ascending auction while the Bertrand price-cutting game being played in the product market, then all bidders except the two lowest cost type bidder will quit the bidding game sequentially and the expected revenue will be close to zero. Furthermore, as the Bertrand competition is more intensive than the Cournot competition, the government’s expected revenue is lower when the product market game played as a Bertrand gameAuction, Oligopoly

Optimal Administered Incentive Pricing of Spectrum

Administered Incentive Pricing (AIP) of radio spectrum as advocated by Smith/NERA (1996) and recently assessed by Indepen (2003) envisages an incremental path towards e±cient pricing, with revealed and stated prefer- ence methods being used to reveal opportunity costs. We build on the latter to develop and optimal pricing scheme that allows for consumer surplus, in- terference constraints and their implications for productive e±ciency, revenue implications and market structure. We demonstrate the subtle relationship between the interference constraints and the pricing and channel use decisions of network operators. We proceed to show that the optimal AIP is higher in sectors where spectrum can be shared and that it acts as Ramsey tax across sectors of the economy, i.e., is inversely related to the elasticity of demand. As a special case of our model we examine optimal pricing where the regula- tor is constrained to ignore the revenue implications. Then optimal spectrum prices are lower and the relationship between prices and the ability to share spectrum is reversed.radio spectrum, spectrum pricing, administered incentive pricing