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

Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty

The resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others' preferences. This paper explores, within the context of an infinite-horizon bargaining model with two-sided uncertainty, how timing and information affect the rational behaviour of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable, they must communicate some of their private information before an agreement can be reached. This need for learning, due to incomplete information about preferences, results in bargaining inefficiencies: trade often occurs after costly delay. Thus, the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice.Bargaining; Delay; Incomplete Information

Lessons from the United States Spectrum Auctions

Mr. Chairman and members of the Senate Budget Committee, I am honored to appear before you today. My remarks are about the spectrum auctions in the United States. I will discuss spectrum auction successes, failures, and what I think are key issues in upcoming spectrum auctions.Auctions, Spectrum Auctions, Multiple Item Auctions

Electricity Market Design: The Good, the Bad, and the Ugly

This paper examines principles of market design as applied to electricity markets. I illustrate the principles with examples of both good and bad designs. I discuss one of the main design challenges—dealing with market power. I then discuss FERC’s choice of a standard market design.Auctions, Electricity Auctions, Market Design

Strategic Delay in Bargaining with Two-Sided Uncertainty

The role of strategic delay is analyzed in an infinite-horizon alternating-offer model of bargaining. A buyer and seller are engaged in the trade of a single object. Both bargainers have private information about their own preferences and are impatient in that delaying agreement is costly. An equilibrium is constructed in which the bargainers signal the strength of their bargaining positions by delaying prior to making an offer. A bargainer expecting large gains from trade is more impatient than one expecting small gains, and hence makes concessions earlier on. Trade occurs whenever gains from trade exist, but due to the private information, only after costly delay.Bargaining; Delay; Asymmetric Information

Review of the Reserves and Operable Capability Markets: New England's Experience in the First Four Months

I review the performance of the operating reserves and the operable capability markets in New England. The review covers the first four months of operation from May 1 to August 31, 1999. The review is based on my knowledge of the market rules and their implementation by the ISO, and the market data during this period, including bidding, operating, and settlement information. In the review, I (1) identify the potential market flaws with these markets, (2) look at the performance of the markets to see if the potential problems have materialized, (3) evaluate the ISO's short-term remedies for these market flaws, and (4) propose alternative medium-term solutions to the identified problems. I find that the OpCap and reserve markets have serious flaws that must be addressed. The ISO's short-term fixes have been necessary and effective at addressing the immediate problems. However, better solutions can be adopted in the medium term. In particular, I recommend (1) eliminate the OpCap market, (2) establish a downward sloping demand curve for reserves, (3) pay the clearing price to all resources that provide the service, (4) establish the true real-time supply curve as simply the quantity of the resource made available in real time, (5) establish back down bids in the TMSR market (bids would be infrequent, perhaps monthly), (6) never set a price in the TMSR market less than the largest lost opportunity cost, (7) continue to cascade the quantities of the bids between operating reserve products, and (8) correct the classification of off-line units that provide a service that looks and acts like TMSR. All of these changes are consistent with the long-term solutions proposed for NEPOOL. These changes represent an important step toward the long-term solution involving multi-settlement energy and reserve markets. These markets should be designed carefully to address the basic economic and engineering issues necessary for an efficient wholesale electricity market.Auctions, Electricity Auctions, Multiple Item Auctions

Spectrum Auctions

Auctions have emerged as the primary means of assigning spectrum licenses to companies wishing to provide wireless communication services. Since July 1994, the Federal Communications Commission (FCC) has conducted 33 spectrum auctions, assigning thousands of licenses to hundreds of firms. Countries throughout the world are conducting similar auctions. I review the current state of spectrum auctions. Both the design and performance of these auctions are addressed.Auctions, Spectrum Auctions, Multiple Item Auctions

Comments on the RGGI Market Design

Auctions, carbon auctions, greenhouse gas auctions

Auctioning Long-term Gas Contracts in Colombia

This paper presents an approach to auctioning long-term gas contracts in Colombia. I propose an annual auction for long-term firm gas contracts. The auction would assign and price all firm gas contracts, with the exception of gas from the Guajira field, which is assigned administratively at a regulated price. The proposal is a partial market design in that it does not address the transportation of gas from producer to consumer.Auctions, gas auctions

The FCC Spectrum Auctions: An Early Assessment

This paper analyzes six spectrum auctions conducted by the Federal Communications Commission (FCC) from July 1994 to May 1996. These auctions were simultaneous multiple-round auctions in which collections of licenses were auctioned simultaneously. This auction form proved remarkably successful. Similar items sold for similar prices and bidders successfully formed efficient aggregations of licenses. Bidding behavior differed substantially in the auctions. The extent of bidder competition and price uncertainty played an important role in determining behavior. Bidding credits and installment payments also played a major role in several of the auctions.Auctions; Spectrum Auctions; Multiple-Round Auctions; Efficiency