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.
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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number
02collude.
Length: 20 pages Date of creation: 04 Dec 2002 Date of revision:
04 Dec 2002 Publication status: Published in Contributions to Economic Analysis & Policy, 1:1, www.bepress.com/bejeap/contributions/vol1/iss1/art11, 2002. Handle: RePEc:pcc:pccumd:02collude
Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211 Phone: (202) 318-0520 Fax: (202) 318-0520 Web page: http://www.cramton.umd.edu
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Find related papers by JEL classification: D44 - Microeconomics - - Market Structure and Pricing - - - Auctions L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Susan Athey & Kyle Bagwell & Chris Sanchirico, 1998.
"Collusion and Price Rigidity,"
Working papers
98-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Peter Cramton, 2002.
"Spectrum Auctions,"
Papers of Peter Cramton
01hte, University of Maryland, Department of Economics - Peter Cramton, revised 16 Jul 2001.
[Downloadable!]
Lawrence M. Ausubel & Peter Cramton, 2004.
"Auctioning Many Divisible Goods,"
Papers of Peter Cramton
04jeea, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
[Downloadable!]
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