Radio Spectrum and the Disruptive Clarity OF Ronald Coase.

In the Federal Communications Commission, Ronald Coase (1959) exposed deep foundations via normative argument buttressed by astute historical observation. The government controlled scarce frequencies, issuing sharply limited use rights. Spillovers were said to be otherwise endemic. Coase saw that Government limited conflicts by restricting uses; property owners perform an analogous function via the "price system." The government solution was inefficient unless the net benefits of the alternative property regime were lower. Coase augured that the price system would outperform the administrative allocation system. His spectrum auction proposal was mocked by communications policy experts, opposed by industry interests, and ridiculed by policy makers. Hence, it took until July 25, 1994 for FCC license sales to commence. Today, some 73 U.S. auctions have been held, 27,484 licenses sold, and $52.6 billion paid. The reform is a textbook example of economic policy success. We examine Coase‘s seminal 1959 paper on two levels. First, we note the importance of its analytical symmetry, comparing administrative to market mechanisms under the assumption of positive transaction costs. This fundamental insight has had enormous influence within the economics profession, yet is often lost in current analyses. This analytical insight had its beginning in his acclaimed early article on the firm (Coase 1937), and continued into his subsequent treatment of social cost (Coase 1960). Second, we investigate why spectrum policies have stopped well short of the property rights regime that Coase advocated, considering rent-seeking dynamics and the emergence of new theories challenging Coase‘s property framework. One conclusion is easily rendered: competitive bidding is now the default tool in wireless license awards. By rule of thumb, about$17 billion in U.S. welfare losses have been averted. Not bad for the first 50 years of this, or any, Article appearing in Volume II of the Journal of Law & Economics.

Immediate Demand Reduction in Simultaneous Ascending Bid Auctions (new title: Immediate demand reduction in simultaneous ascending-bid auctions: a uniqueness result)

The present note analyzes the Simultaneous Ascending Bid Auction with arbitrarily many bidders with decreasing marginal valuations under complete information. We show that the game is solvable by iterated elimination of weakly dominated strategies if the efficient allocation assigns at least one unit to every player and if bid increments are sufficiently small. In that unique equilibrium, bidders immediately reduce their demand to the efficient allocation, and the auction ends in the first round of bidding.Simultaneous Ascending Auction, weak dominance, multi-unit auctions, game theory