Money Out of Thin Air: The Nationwide Narrowband PCS Auction

The Federal Communications Commission held its first auction of radio spectrum at the Nationwide Narrowband PCS Auction in July 1994. The simultaneous multiple-round auction, which lasted five days, was an ascending bid auction in which all licenses were offered simultaneously. This paper describes the auction rules and how bidders prepared for the auction. The full history of bidding is presented. Several questions for auction theory are discussed. In the end, the government collected $617 million for ten licenses. The auction was viewed by all as a huge success-an excellent example of bringing economic theory to bear on practical problems of allocating scarce resources.Auctions; Spectrum Auctions; Multiple-Round Auction

Auctioning the Digital Dividend: a Model for Spectrum

This paper models a spectrum auction as a multi-unit auction where participantsuse the goods purchased to participate in a constrained multi-good downstream market. We use dynamic programming techniques to solve for the optimal bidding strategy for firms in a clock auction. Firms often value constraining competitor market power highly and inefficient firms will often bid aggressively to minimise competition. Regulators concerned with revenue maximisation have strong incentives to encourage this behaviour capping more efficient firms or capping entrants to the market. In contrast social welfare concerns suggest that allocating spectrum may be more efficient than using an auction

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.

Collusive Bidding: Lessons from the FCC Spectrum Auctions

The Federal Communications Commission (FCC) spectrum auctions use a simultaneous ascending auction design. Bidders bid on numerous communication licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to bid higher on any license. With full revelation of bidding information, simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. These strategies can help bidders coordinate a division of the licenses, and enforce the proposed division by directed punishments. We examine solutions to mitigate collusive bidding in the spectrum auctions, and then apply these ideas to the design of daily electricity auctions.Auctions, Collusion; Multiple Object Auctions; Spectrum Auctions

Automated Markets and Trading Agents

Computer automation has the potential, just starting to be realized, of transforming the design and operation of markets, and the behaviors of agents trading in them. We discuss the possibilities for automating markets, presenting a broad conceptual framework covering resource allocation as well as enabling marketplace services such as search and transaction execution. One of the most intriguing opportunities is provided by markets implementing computationally sophisticated negotiation mechanisms, for example combinatorial auctions. An important theme that emerges from the literature is the centrality of design decisions about matching the domain of goods over which a mechanism operates to the domain over which agents have preferences. When the match is imperfect (as is almost inevitable), the market game induced by the mechanism is analytically intractable, and the literature provides an incomplete characterization of rational bidding policies. A review of the literature suggests that much of our existing knowledge comes from computational simulations, including controlled studies of abstract market designs (e.g., simultaneous ascending auctions), and research tournaments comparing agent strategies in a variety of market scenarios. An empirical game-theoretic methodology combines the advantages of simulation, agent-based modeling, and statistical and game-theoretic analysis.http://deepblue.lib.umich.edu/bitstream/2027.42/49510/1/ace_galleys.pd

Auctioning the Digital Dividend: a Model for Spectrum

This paper models a spectrum auction as a multi-unit auction where participantsuse the goods purchased to participate in a constrained multi-good downstream market. We use dynamic programming techniques to solve for the optimal bidding strategy for firms in a clock auction. Firms often value constraining competitor market power highly and inefficient firms will often bid aggressively to minimise competition. Regulators concerned with revenue maximisation have strong incentives to encourage this behaviour capping more efficient firms or capping entrants to the market. In contrast social welfare concerns suggest that allocating spectrum may be more efficient than using an auction

Economics of Spectrum Allocation in Cognitive Radio Networks

Cognitive radio networks (CRNs) are emerging as a promising technology for the efficient use of radio spectrum. In these networks, there are two levels of networks on each channel, primary and secondary, and secondary users can use the channel whenever the primary is not using it. Spectrum allocation in CRNs poses several challenges not present in traditional wireless networks; the goal of this dissertation is to address some of the economic aspects thereof. Broadly, spectrum allocation in CRNs can be done in two ways- (i) one-step allocation in which the spectrum regulator simultaneously allocates spectrum to primary and secondary users in a single allocation and (ii) two-step allocation in which the spectrum regulator first allocates spectrum to primary users, who in turn, allocate unused portions on their channels to secondary users. For the two-step allocation scheme, we consider a spectrum market in which trading of bandwidth among primaries and secondaries is done. When the number of primaries and secondaries is small, we analyze price competition among the primaries using the framework of game theory and seek to find Nash equilibria. We analyze the cases both when all the players are located in a single small location and when they are spread over a large region and spatial reuse of spectrum is done. When the number of primaries and secondaries is large, we consider different types of spectrum contracts derived from raw spectrum and analyze the problem of optimal dynamic selection of a portfolio of long-term and short-term contracts to sell or buy from the points of view of primary and secondary users. For the one-step allocation scheme, we design an auction framework using which the spectrum regulator can simultaneously allocate spectrum to primary and secondary users with the objective of either maximizing its own revenue or maximizing the social welfare. We design different bidding languages, which the users can use to compactly express their bids in the auction, and polynomial-time algorithms for choosing the allocation of channels to the bidders