Communications

Spectrum auctions and open access wireless (without abstracts)

“Open Access Markets for Capacity and the Inseparability of Spectrum and Infrastructure” (with Linda Doyle and Tim Forde) in Gregory Taylor and Catherine Middleton (eds) Frequencies, Chapter 10, McGill-Queen’s University Press, 2020.

“A Neutral Wholesale Wireless Market in the United States” (with Linda Doyle), Working Paper, University of Maryland, November 2017.

“A Neutral Wholesale Wireless Market in the United Kingdom” (with Linda Doyle), Working Paper, University of Maryland, November 2017.

“The German 4G Spectrum Auction: Design and Behaviour” (with Axel Ockenfels), Economic Journal, 127, F305-F324, October 2017. [Public data]

“Open Access Wireless Markets” (with Linda Doyle), Telecommunications Policy, 41:5-6, 379-390, June 2017.

“An Open Access Wireless Market” (with Linda Doyle), Working Paper, University of Maryland, March 2016. [Presentation, Rivada Slides]

“Design of the Reverse Auction in the Broadcast Incentive Auction” (with Hector Lopez, David Malec and Pacharasut Sujarittanonta), Working Paper, University of Maryland, 15 June 2015; Appendix. [See also FCC Comment Public Notice; EOBC Comment; EOBC Reply Comment; 3 July Filing Cramton, EOBC; Kagan Comment]

“Bidding and Prices in the AWS-3 Auction” (with Pacharasut Sujarittanonta), Working Paper, University of Maryland, May 2015.

“Spectrum Auction Design,” Review of Industrial Organization, 42:2, 161-190, March 2013. [Presentation]

US Patent No. 8,145,555, “System and Method for the Efficient Clearing of Spectrum Encumbrances” (with Lawrence M. Ausubel and Paul Milgrom) issued March 27, 2012.

“Quadratic Core-Selecting Payment Rules for Combinatorial Auctions” (with Robert Day), Operations Research, 60:3, 588-603, 2012.

“Activity Rules for the Combinatorial Clock Auction” (with Lawrence M. Ausubel), Working Paper, University of Maryland, November 2011.

“Incentive Auctions and Spectrum Policy,” Testimony of Peter Cramton before the United States House Committee on Energy and Commerce, 15 July 2011. [Responses to questions]

“Incentive Auctions,” Working Paper, University of Maryland, July 2011. [Presentation: pptx, pdf]

“Using Spectrum Auctions to Enhance Competition in Wireless Services” (with Evan Kwerel, Gregory Rosston, and Andrzej Skrzypacz), Journal of Law and Economics, 54:4, S167-S188, 2011.

“Auctioning the Digital Dividend,” in Jan Kramer and Stefan Seifert (eds.), Communications Regulation in the Age of Digital Convergence: Legal and Economic Perspectives, Karlsruhe, Germany: Karlsruhe Institute of Technology, 2009.

“A Review of the 10-40 GHz Auction,” Office of Communications, United Kingdom, September 2008.

“A Review of the L-Band Auction,” Office of Communications, United Kingdom, September 2008.

“The 700 MHz Spectrum Auction: An Opportunity to Protect Competition In a Consolidating Industry” (with Andrzej Skrzypacz and Robert Wilson), submitted to the U.S. Department of Justice, Antitrust Division, 13 November 2007.

“Comments on the FCC’s Proposed Competitive Bidding Procedures for Auction 73″ (with Gregory Rosston, Andrzej Skrzypacz, and Robert Wilson), 31 August 2007. [Frontline Wireless Filing, Reply Comments]

“The Effect of Incumbent Bidding in Set-Aside Auctions: An Analysis of Prices in the Closed and Open Segments of FCC Auction 35″ (with Allan T. Ingraham and Hal J. Singer) Telecommunications Policy, 32, 273-290, 2008.

Economist Letter to NTIA on 700 MHz Spectrum Auction (with Andrzej Skrzypacz, Simon Wilkie, and Robert Wilson), 30 July 2007.

“Essential Entry: Revenues in the 700 MHz Spectrum Auction,” University of Maryland, 13 July 2007.

“Revenues in the 700 MHz Spectrum Auction” (with Andrzej Skrzypacz and Robert Wilson), Working Paper, University of Maryland, 27 June 2007.

“Economic Comments on the Design of the 700 MHz Spectrum Auction” (with Andrzej Skrzypacz and Robert Wilson), submitted with testimony of James L. Barksdale to the U.S. Senate Committee on Commerce, Science, and Transportation, 14 June 2007. [Initial FCC Filing]

“The Clock-Proxy Auction: A Practical Combinatorial Auction Design,” (with Lawrence M. Ausubel and Paul Milgrom) in Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), Combinatorial Auctions, Chapter 5, 115-138, MIT Press, 2006. [Presentation]

“Simultaneous Ascending Auctions,” in Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), Combinatorial Auctions, Chapter 4, 99-114, MIT Press, 2006.

“Collusive Bidding in the FCC Spectrum Auctions,” (with Jesse Schwartz) Contributions to Economic Analysis & Policy, 1:1, 2002. [Presentation]

“Spectrum Auctions,” in Martin Cave, Sumit Majumdar, and Ingo Vogelsang, eds., Handbook of Telecommunications Economics, Amsterdam: Elsevier Science B.V., Chapter 14, 605-639, 2002.

“How Affirmative Action at the FCC Auctions Decreased the Deficit,” (with Ian Ayres) in Ian Ayres, ed., Pervasive Prejudice? Unconventional Evidence of Race and Gender Discrimination, Chicago: University of Chicago Press, 315-395, 2001.

“Lessons Learned from the UK 3G Spectrum Auction.” In U.K. National Audit Office Report, The Auction of Radio Spectrum for the Third Generation of Mobile Telephones, Appendix 3, October 2001.

“Collusive Bidding: Lessons from the FCC Spectrum Auctions,” (with Jesse Schwartz) Journal of Regulatory Economics, 17, 229-252, May 2000.

Simultaneous Ascending Auctions with Package Bidding, (with John McMillan, Paul Milgrom, Bradley Miller, Bridger Mitchell, Daniel Vincent, and Robert Wilson) Report to the Federal Communications Commission, March 1998.

“Efficient Relocation of Spectrum Incumbents,” (with Evan Kwerel and John Williams) Journal of Law and Economics, 41, 647-675, October 1998.

“The Efficiency of the FCC Spectrum Auctions,” Journal of Law and Economics, 41, 727-736, October 1998.

Package Bidding for Spectrum Licenses, (with John McMillan, Paul Milgrom, Bradley Miller, Bridger Mitchell, Daniel Vincent, and Robert Wilson) Report to the Federal Communications Commission, October 1997.

Auction Design Enhancements for Non-Combinatorial Auctions, (with John McMillan, Paul Milgrom, Bradley Miller, Bridger Mitchell, Daniel Vincent, and Robert Wilson) Report to the Federal Communications Commission, September 1997.

“Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions,” (with Lawrence M. Ausubel, R. Preston McAfee, and John McMillan) Journal of Economics and Management Strategy, 6:3, 497-527, 1997. [Data]

“Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition,” (with Ian Ayres) Stanford Law Review, 48:4, 761-815, 1996.

“The FCC Spectrum Auctions: An Early Assessment,” Journal of Economics and Management Strategy, 6:3, 431-495, 1997. Reprinted in Donald L. Alexander (ed.), Telecommunications Policy, Praeger Publishers, 1997.

“Money Out of Thin Air: The Nationwide Narrowband PCS Auction,” Journal of Economics and Management Strategy, 4, 267–343, 1995.

“The Case for Affirmative Auction: From Conscience to Coffers,” (with Ian Ayres) New York Times, 21 May 1995, F13.

Spectrum auctions and open access wireless (with abstracts)

“A Neutral Wholesale Wireless Market in the United States” (with Linda Doyle), Working Paper, University of Maryland, November 2017.

“A Neutral Wholesale Wireless Market in the United Kingdom” (with Linda Doyle), Working Paper, University of Maryland, November 2017.

“The German 4G Spectrum Auction: Design and Behaviour” (with Axel Ockenfels), Economic Journal, 127, F305-F324, October 2017. [Public data]

The 2010 German 4G spectrum auction was an unusually large simultaneous ascending multi-band auction. The bidding was competitive and the final assignment was efficient. However, our analysis suggests that independent and rational bidders had an opportunity to coordinate implicitly on a low-revenue outcome. Coordination was difficult, though, because of a multiplicity of focal points. One important focal point involved post-auction negotiations, posing risks to bidders and the auctioneer. We analyse different bidding scenarios and how post-auction negotiations can affect values, bidding and efficiency. We also discuss how the simultaneous ascending auction format can be augmented to mitigate the risks.

“Open Access Wireless Markets” (with Linda Doyle), Telecommunications Policy, 41:5-6, 379-390, June 2017.

This paper describes an open access market for capacity. Open access means that in real-time, network capacity cannot be withheld—capacity is priced dynamically by the marginal demand during congestion. The paper offers the open access market as a means for managing growing spectrum demand and as an alternative to naked spectrum sharing. The paper describes the parameters of the open access market showing that it can be implemented using today’s technology and without significant regulatory change. The paper discusses how the open access market can eliminate barriers at the service level, allowing any number of service providers to compete in response to market drivers. The paper emphasises that the spatial and temporal granularity at which capacity can be purchased, allows for smaller entities to acquire resources, which is important for new entrants testing the water and those with non-standard business plans. The paper also shows how the open access market can provide a path to achieve greater sharing and efficient trade in the future.

“An Open Access Wireless Market” (with Linda Doyle), Working Paper, University of Maryland, March 2016. [Presentation, Rivada Slides]

We present a market design for an open access wireless market. Open access means that in real time, network capacity cannot be withheld—network throughput is priced dynamically by the marginal demand during congestion. In unconstrained times and locations, a nominal fee is paid for network throughput. As in electricity markets, the real-time market provides the foundation for forward markets. Monthly forwards are auctioned before the start of each month; yearly forwards are auctioned before the start of each year. Market participants, both operators and traders, take positions in forward auctions to manage risk and optimize portfolios. Deviations from forward positions are settled at real-time prices based on actual use. The independent system operator runs the network and conducts the real-time, monthly, and yearly auctions of network throughput. An independent market monitor observes the market, identifies problems, and suggests solutions. A board—including affiliated directors representing important stakeholders together with independent directors with subject matter expertise—governs the market. A goal of the market is to provide a secure, robust, wide-coverage platform for mobile communications supporting public safety and universal service. Public safety has pre-emptive rights during emergencies and otherwise has economic use like wholesale operators. A complementary goal is competition. The open access provision brings vibrant competition through low-cost, non-discriminatory entry into the wireless market. The market provides a natural remedy for mergers, allowing operational efficiency gains while increasing competition. Critical funding is provided through efficient congestion pricing that balances supply and demand at every time and location. The market, enabled by flexible handsets and the LTE technology, radically reforms current spectrum policy. The market coexists and complements the dedicated networks of incumbent carriers, promoting efficient spectrum use and essential innovation.

We consider important design issues of the reverse auction, a key and innovative part of the broadcast television incentive auction. In the reverse auction, broadcasters compete to repurpose television broadcast spectrum for mobile broadband use. The Comment Public Notice (FCC 14-191) outlined the basic structure of the reverse auction. We take that basic structure as given and then examine critical elements of the design to maximize the government’s objectives of efficiency, simplicity, transparency, and fairness. Based on extensive simulation analysis of the FCC’s basic design, we identify important enhancements to the design that maintain its basic structure, yet improve the chance of a successful auction. This is accomplished by strengthening incentives for broadcaster participation and relying on competitive forces to determine auction clearing prices. Our analysis is based on a carefully-crafted reservation price model for broadcasters together with inevitable uncertainties of these reservation prices. In our simulations, we are able to clear 126 MHz of spectrum at a cost that is well within plausible revenues from the forward auction. This is accomplished with an improved scoring rule and replacing Dynamic Reserve Prices (DRP) with a much simpler Round Zero Reserve (RZR, pronounced “razor”) to promote objectives of transparency and simplicity. We also propose a simplified method of setting the clearing target and an information policy that allows for important outcome discovery. Relative to the FCC’s proposal outlined in the Comment PN, our enhanced proposal is more robust, efficient, and transparent; it also is simpler and fairer.

“Bidding and Prices in the AWS-3 Auction” (with Pacharasut Sujarittanonta), Working Paper, University of Maryland, May 2015.

The FCC’s AWS-3 spectrum auction raised revenues in excess of $44 billion—a new historic high. Our analysis demonstrates that the auction’s results largely line up with the bidding strategies one would expect of the top four bidders in this auction. In particular, the results demonstrate the high value AT&T and Verizon, the two largest winners of paired broadband spectrum in the auction, have for mid-band AWS-3 spectrum. The auction results similarly demonstrate the premium AT&T and Verizon attached to the availability of contiguous 20 MHz blocks of mid-band spectrum in the H+I blocks or the J block. Thus, AT&T and Verizon’s own bidding strategies call into question their claims that the AWS-3 auction’s success somehow demonstrates the irrelevance of a pro-competitive spectrum reserve for the 600 MHz auction. If anything, the results in the AWS-3 auction reinforce the need for a pro-competitive spectrum reserve in an auction of low-band 600 MHz spectrum, for which smaller carriers will have a greater need.

“Spectrum Auction Design,” Review of Industrial Organization, 42:2, 161-190, March 2013. [Presentation]

Spectrum auctions are used by governments to assign and price licenses for wireless communications. The standard approach is the simultaneous ascending auction, in which many related lots are auctioned simultaneously in a sequence of rounds. I analyze the strengths and weaknesses of the approach with examples from US spectrum auctions. I then present a variation, the combinatorial clock auction, adopted by the UK and many other countries, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The combinatorial clock auction is a simple dynamic auction in which bidders bid on packages of lots. Most importantly, the auction allows alternative technologies that require the spectrum to be organized in different ways to compete in a technology-neutral auction. In addition, the pricing rule and information policy are carefully tailored to mitigate gaming behavior. An activity rule based on revealed preference promotes price and assignment discovery throughout the clock stage of the auction. Truthful bidding is encouraged, which simplifies bidding and improves efficiency. Experimental tests and early auctions confirm the advantages of the approach.

US Patent No. 8,145,555, “System and Method for the Efficient Clearing of Spectrum Encumbrances” (with Lawrence M. Ausubel and Paul Milgrom) issued March 27, 2012.

The present invention is a system and method to sell or procure complementary goods. A complementary good according to the invention is a good whose value or utility is enhanced when paired with another good, such a pair of goods is a communications license to encumbered spectrum and a complementary clearing right to clear the spectrum of its encumbrance. The invention provides automated procedures to facilitate the fashioning and sale of clearing rights so as to enhance the value of the communications license.

“Quadratic Core-Selecting Payment Rules for Combinatorial Auctions” (with Robert Day), Operations Research, 60:3, 588-603, 2012.

We report on the use of a quadratic programming technique in recent and upcoming spectrum auctions in Europe. Specifically, we compute a unique point in the core that minimizes the sum of squared deviations from a reference point, for example, from the Vickrey-Clarke-Groves payments. Analyzing the Karush-Kuhn-Tucker conditions, we demonstrate that the resulting payments can be decomposed into a series of economically meaningful and equitable penalties. Furthermore, we discuss the benefits of this combinatorial auction, explore the use of alternative reserve pricing approaches in this context, and indicate the results of several hundred computational runs using CATS data.

“Activity Rules for the Combinatorial Clock Auction” (with Lawrence M. Ausubel), Working Paper, University of Maryland, November 2011.

In the original proposal for the combinatorial clock auction (Ausubel, Cramton and Milgrom, 2006), a revealed-preference approach was taken to limiting bidders’ activity, based on their earlier activity. However, empirical implementations of the CCA to spectrum auctions have tended to place most or all reliance on a monotonicity condition in eligibility points. This paper proposes activity rules which strike a balance between revealed preference and eligibility-point monotonicity. For the clock auction stage, we propose a hybrid revealed-preference/eligibility-point approach, in which the current round’s bid should satisfy a simplified revealed-preference constraint relative to prior rounds’ bids, but with an eligibility-point safe harbor. For the supplementary round, we propose a tightening of Ofcom’s relative cap, in which supplementary bids must satisfy revealed preference relative to the final clock bid, as well as relative to bids in all eligibility-reducing rounds in which the bidder’s eligibility went below the eligibility points associated with the bid in question.

“Incentive Auctions and Spectrum Policy,” Testimony of Peter Cramton before the United States House Committee on Energy and Commerce, 15 July 2011. [Responses to questions]

My remarks are about spectrum policy, especially a much needed enhancement, incentive auctions. Incentive auctions would allow the Federal Communications Commission (FCC) to conduct two-sided auctions—auctions that simultaneously free-up encumbered spectrum and put it to its best use.

“Incentive Auctions,” Working Paper, University of Maryland, April 2011. [Presentation: pptx, pdf]

A proposed auction design for incentive auctions is given. The two-sided auctions enable the exchange of spectrum from a low-value use, such as over-the-air TV broadcast, to a high-value use, such as mobile broadband. The approach is both simple and effective. The auction has three stages conducted in sequence: 1) a reverse auction to determine the supply curve for spectrum, 2) a repacking stage that determines a set of optimal repacking plans for freeing various amounts of contiguous spectrum nationwide, and 3) a forward auction for determining the demand curve for spectrum. The auction determines the parties that are giving up spectrum, reorganizes the remaining parties within the legacy band to free-up contiguous spectrum at least cost in a new band, and finally determines the assignment and pricing of the new band.

“Using Spectrum Auctions to Enhance Competition in Wireless Services” (with Evan Kwerel, Gregory Rosston, and Andrzej Skrzypacz), Journal of Law and Economics, 54:4, S167-S188, 2011.

Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.

I begin by describing some of the problems of the simultaneous ascending auction. Then I present the package clock auction, which retains the benefits, while addressing the weaknesses, of the simultaneous ascending auction. I emphasize two essential elements of the package clock auction: the pricing rule and the activity rule. Along the way, I summarize both experimental and field results with the package clock auction.

“A Review of the 10-40 GHz Auction,” Office of Communications, United Kingdom, September 2008.

In February 2008, Ofcom’s 10-40 GHz auction concluded. This was Ofcom’s first combinatorial clock auction. The auction used an innovative format intended to encourage an efficient assignment of the 27 lots. Each of the ten bidders won one or more lots. All 27 lots were assigned. This note briefly reviews the auction.

“A Review of the L-Band Auction,” Office of Communications, United Kingdom, September 2008.

In May 2008, Ofcom’s L-band auction concluded. This was Ofcom’s second combinatorial clock auction. The auction used an innovative format intended to encourage an efficient assignment of the 17 lots. Eight bidders competed for the lots. In sharp contrast to the first combinatorial clock auction, the 10-40 GHz auction, in which each of the ten bidders won spectrum, in the L-band auction there was a single winner—Qualcomm won all the lots. This note briefly reviews the auction.

“Comments on the FCC’s Proposed Competitive Bidding Procedures for Auction 73” (with Gregory Rosston, Andrzej Skrzypacz, and Robert Wilson), 31 August 2007. [Frontline Wireless Filing, Reply Comments]

“The Effect of Incumbent Bidding in Set-Aside Auctions: An Analysis of Prices in the Closed and Open Segments of FCC Auction 35” (with Allan T. Ingraham and Hal J. Singer) Telecommunications Policy, 32, 273-290, 2008.

This paper examines the impact of an incumbent carrier’s participation in two simultaneously conducted auctions: one set-aside for non-incumbents and one open to all carriers. This paper estimates the extent to which prices in the closed auction were inflated by the participation of incumbents. This paper also estimates what prices would have been in the open auction had incumbents been excluded from bidding in the closed. It is found that an incumbent’s participation in the closed auction through a front, Alaska Native, enabled it to win more licenses at lower prices in FCC Auction 35. In contrast, non-incumbents won fewer licenses and paid more for what they won. The econometric techniques employed here to estimate prices in a “but for” world could be replicated in future damage analysis. Finally, this paper suggests an alternative method of screening bidders seeking access to set-aside auctions that would be consistent with the FCC’s goal of promoting competition in the wireless industry.

Economist Letter to NTIA on 700 MHz Spectrum Auction (with Andrzej Skrzypacz, Simon Wilkie, and Robert Wilson), 30 July 2007.

As the 700 MHz auction approaches, we are writing to clear up a common misconception about the nature of spectrum auctions and the impact of various rules on auction revenues.

“Essential Entry: Revenues in the 700 MHz Spectrum Auction,” University of Maryland, 13 July 2007.

A common misconception is that an open access provision on a sliver of the 700 MHz spectrum would reduce auction revenues. In fact, the open access, wholesale, and bidding credit provisions put forth by Frontline Wireless, will motivate new entry, enhance competition in the auction, and raise revenues.

“Revenues in the 700 MHz Spectrum Auction” (with Andrzej Skrzypacz and Robert Wilson), Working Paper, University of Maryland, 27 June 2007.

There have been several comments that criticize auction rules that prevent the two major low-frequency incumbents from winning all of the newly available spectrum and incorporating it into their proprietary networks. Such rules include new-entrant set-asides, new-entrant bidding credits, and the open access plan. We disagree with these criticisms and argue that given the current market structure, such rules are likely to improve welfare and auction revenues. We are submitting this report to provide sound economic analysis of these claims.

We comment on the service and auction rules discussed in the Report and Order and Further Notice of Proposed Rule Making, FCC 07-72, 27 April 2007. We recommend that the FCC designate one license for a wholesale operation that provides open access nationwide on nondiscriminatory terms. This is necessary to enable entry of new businesses offering wireless services in retail markets. It also enables local operators to offer roaming at competitive prices. The new license accords with the Commission’s policy to encourage competition, and recognizes the benefits to consumers from low prices and expanded services.

We propose the clock-proxy auction as a practical means for auctioning many related items. A clock auction phase is followed by a last-and-final proxy round. The approach combines the simple and transparent price discovery of the clock auction with the efficiency of the proxy auction. Linear pricing is maintained as long as possible, but then is abandoned in the proxy round to improve efficiency and enhance seller revenues. The approach has many advantages over the simultaneous ascending auction. In particular, the clock-proxy auction has no exposure problem, eliminates incentives for demand reduction, and prevents most collusive bidding strategies.

“Simultaneous Ascending Auctions,” in Peter Cramton, Yoav Shoham, and Richard Steinberg (eds.), Combinatorial Auctions, Chapter 4, 99-114, MIT Press, 2006.

The simultaneous ascending auction has proved to be a successful method of auctioning many related items. Simultaneous sale and ascending bids enable price discovery, which helps bidders build desirable packages of items. Although package bids are not allowed, the auction format does handle mild complementarities well. I examine the auction design and its performance in practice.

“Collusive Bidding in the FCC Spectrum Auctions,” (with Jesse Schwartz) Contributions to Economic Analysis & Policy, 1:1, 2002. [Presentation]

This paper describes the signaling that occurred in many of the FCC spectrum auctions. The FCC’s simultaneous ascending auctions allowed bidders to bid on numerous communication licenses simultaneously, with bidding remaining open on all licenses until no bidder was willing to raise the bid on any license. Simultaneous open bidding allowed bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This “code bidding” occurs when one bidder tags the last few digits of its bid with the market number of a related license. Such bids can help bidders coordinate a division of the licenses, and enforce the proposed division through targeted punishments. Often the meaning of a bid is clear without attaching a market number in the trailing digits. Such a “retaliating bid” need not end in a market number to warn off a rival from a contested market. We examine how extensively bidders signaled each other with retaliating bids and code bids in the DEF-block PCS spectrum auction held from August 1996 through January 1997. We find that only a small fraction of the bidders commonly used these signals. The price differences between those markets where signaling did and did not occur were negligible. However, bidders that used these collusive bidding strategies won more than 40% of the spectrum for sale and paid significantly less for their overall winnings, suggesting that the indirect losses from code bidding and retaliation may be large.

“Spectrum Auctions,” in Martin Cave, Sumit Majumdar, and Ingo Vogelsang, eds., Handbook of Telecommunications Economics, Amsterdam: Elsevier Science B.V., Chapter 14, 605-639, 2002.

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.

“Lessons Learned from the UK 3G Spectrum Auction.” In U.K. National Audit Office Report, The Auction of Radio Spectrum for the Third Generation of Mobile Telephones, Appendix 3, October 2001.

“Collusive Bidding: Lessons from the FCC Spectrum Auctions,” (with Jesse Schwartz) Journal of Regulatory Economics, 17, 229-252, May 2000.

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 explore the extent that bidders signaled each other with retaliating bids in recent FCC spectrum auctions. These strategies were used frequently by a small fraction of the bidders, and were sometimes effective. Direct estimates of revenue losses from these practices are inconclusive; however, bidders that used these collusive bidding strategies paid significantly less, suggesting that the indirect losses may be much larger. We examine solutions to mitigate collusive bidding in the spectrum auctions, and then apply these ideas to the design of daily electricity auctions.

An effective package bidding mechanism addresses three problems: the exposure problem (the risks a bidder faces in trying to construct an efficiently large combination of licenses), the free-rider problem (the difficulties small bidders have in beating those who bid for larger packages of licenses), and the computational complexity problem (which arises from the fact that the number of possible combinations of licenses is much larger than the number of licenses). Package bidding offers the possibility of an improvement over individual-license bidding only when there are strong complementarities and the pattern of those complementarities varies across bidders. Package bidding works satisfactorily only when the auction rules have been carefully designed to manage all three problems.

“Efficient Relocation of Spectrum Incumbents,” (with Evan Kwerel and John Williams) Journal of Law and Economics, 41, 647-675, October 1998.

Changes in technologies and in consumer demands have made prior radio spectrum allocations far from efficient. To address this problem the FCC has recently reallocated spectrum for more flexible use in bands that are partially occupied by incumbent license holders. Often, it is necessary for the new license holder to relocate incumbents to make efficient use of the spectrum. Regulations structuring the negotiation between incumbent and new entrant can promote efficiency. In particular, giving the new entrant the right to move the incumbent with compensation can reduce negotiation costs and promote efficiency when there is private information about spectrum values but good public information about the cost of relocating the incumbent. We examine the experience of broadband PCS entrants in relocating microwave incumbents. We conclude with some remarks on how these ideas might be applied to digital television spectrum.

“The Efficiency of the FCC Spectrum Auctions,” Journal of Law and Economics, 41, 727-736, October 1998.

From July 1994 to July 1996, the Federal Communications Commission (FCC) conducted nine spectrum auctions, raising about $20 billion for the U.S. Treasury. The auctions assigned thousands of licenses to hundreds of firms. Were the auctions efficient? Did they award the licenses to the firms best able to turn the spectrum into valuable services for consumers? There is substantial evidence that the FCC’s simultaneous ascending auction worked well. It raised large revenues. It revealed critical information in the process of bidding and gave bidders the flexibility to adjust strategies in response to new information. As a result, similar licenses sold for similar prices, and bidders were able to piece together sensible sets of licenses.

The FCC was an innovator in adopting the rules of the simultaneous ascending-price auction for its sales of spectrum licenses. While these rules have performed well in the auctions conducted so far (and would perform even better with the design improvements suggested in our first report), there are two inherent limitations in any design that seeks to assign and price the licenses individually. First, such designs create strategic incentives for bidders interested in multiple licenses that are substitutes to reduce their demands for some of the licenses in order to reduce the final prices of the others; this is the demand reduction problem. Second, even if bidders behave non-strategically, there is a fundamental problem with the basic concept of individual-license pricing when licenses are complementary. In simultaneous ascending-price auctions, from a bidder’s perspective this is the exposure problem. A bidder who is unsuccessful in bidding for a large package of licenses may be left with a partial package whose total price cannot be justified in the absence of those complementary licenses it failed to win. This problem is present in any auction mechanism that sells licenses individually, with no opportunity to bid on packages. In this report our task is confined to analyses of the merits of package bidding and the practical problems of implementation. In our next report, we will outline proposals for the details of the procedural rules and other aspects of implementing a practical design, as well as the software development that would be necessary.

We evaluate a number of possible enhancements to the FCC auctions. We consider only changes to the current auction rules that stay within the basic format of the simultaneous multiple round auction for individual licenses. This report summarizes and extends our e-mail exchanges with FCC staff on this topic. A subsequent report will cover auctions with combination bids. Overall, the FCC spectrum auctions have been an enormous success. However, there are two design goals in the auction where important improvement can be achieved within the basic rules structure. These are restricting collusion among bidders and reducing the time taken to complete the auction. This report focuses on enhancements that help to achieve these two goals. Some of the suggested changes also streamline the auction process so large auctions can be conducted more quickly without sacrificing efficiency.

We examine bid data from the first two broadband PCS spectrum auctions for evidence of value synergies. First, we estimate a benchmark regression for the determinants of final auction prices. Then, we include variables reflecting the extent to which bidders ultimately won or already owned the adjacent wireless properties. Consistent with geographic synergies in an ascending-bid auction, prices were higher when the highest-losing bidder had adjacent licenses. The footprints of winning bidders suggest that they were often successful in realizing these synergies.

“Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition,” (with Ian Ayres) Stanford Law Review, 48:4, 761-815, 1996.

In recent auctions for paging licenses, the Federal Communications Commission has granted businesses owned by minorities and women substantial bidding credits. In this article, Professors Ayres and Cramton analyze a particular auction and argue that the affirmative action bidding preferences, by increasing competition among auction participants, increased the government’s revenue by $45 million. Subsidizing the participation of new bidders can induce established bidders to bid more aggressively. The authors conclude that this revenue-enhancing effect does not provide a sufficient constitutional justification for affirmative action—but when such justification is independently present, affirmative actions can cost the government much less than is currently thought.

“The FCC Spectrum Auctions: An Early Assessment,” Journal of Economics and Management Strategy, 6:3, 431-495, 1997. Reprinted in Donald L. Alexander (ed.), Telecommunications Policy, Praeger Publishers, 1997.

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.

“Money Out of Thin Air: The Nationwide Narrowband PCS Auction,” Journal of Economics and Management Strategy, 4, 267–343, 1995.

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.

“The Case for Affirmative Auction: From Conscience to Coffers,” (with Ian Ayres) New York Times, 21 May 1995, F13.

The Federal Communications Commission’s auction of wireless communication licenses last fall has been criticized as a huge Government giveaway because of the substantial bidding preferences granted to women and minorities. In March, Federal court action delayed the FCC’s June auction until August to consider the legality of similar preferences. But far from being a giveaway, affirmative action actually increased the total amount paid to the Government by about $15 million. Women and minority bidders were granted a 40 percent bidding credit on certain licenses and the right to pay the Government in installments over 10 years at a favorable rate. The combined effect was that these favored bidders only had to pay the Government 50 percent of any winning bid. So how could such subsidies have raised the total auction revenue? The answer is that giving preferences to relatively weak bidders can induce strong bidders to bid higher. The extra revenue the Government gets from the strong bidders can more than offset the subsidy to the weaker bidders.

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