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Spectrum Auction Design

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Abstract

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 package clock auction, adopted by the UK, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The package 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 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.

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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 09sad.

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Length: 29 pages
Date of creation: 2009
Date of revision: 2012
Publication status: Published in Working Paper, University of Maryland, April 2012
Handle: RePEc:pcc:pccumd:09sad

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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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Keywords: Auctions; spectrum auctions; market design; package auction; clock auction; combinatorial auction;

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References

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  1. Robert W. Day & S. Raghavan, 2007. "Fair Payments for Efficient Allocations in Public Sector Combinatorial Auctions," Management Science, INFORMS, INFORMS, vol. 53(9), pages 1389-1406, September.
  2. Robert Day & Paul Milgrom, 2008. "Core-selecting package auctions," International Journal of Game Theory, Springer, Springer, vol. 36(3), pages 393-407, March.
  3. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers, Economics Group, Nuffield College, University of Oxford 2004-W09, Economics Group, Nuffield College, University of Oxford.
  4. Lawrence M. Ausubel, 2006. "An Efficient Dynamic Auction for Heterogeneous Commodities," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 602-629, June.
  5. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
  6. Erdil, Aytek & Klemperer, Paul, 2009. "A New Payment Rule for Core-Selecting Package Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7487, C.E.P.R. Discussion Papers.
  7. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers, Stanford University, Department of Economics 02004, Stanford University, Department of Economics.
  8. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(3), pages 145-162, Summer.
  9. Lawrence M. Ausubel, 2004. "An Efficient Ascending-Bid Auction for Multiple Objects," American Economic Review, American Economic Association, American Economic Association, vol. 94(5), pages 1452-1475, December.
  10. Cramton, Peter & Kwerel, Evan & Williams, John, 1998. "Efficient Relocation of Spectrum Incumbents," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 41(2), pages 647-75, October.
  11. Sandro Brusco & Giuseppe Lopomo, 2002. "Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 407-436.
  12. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
  13. Alfred E. Kahn & Peter Cramton & Robert H. Porter & Richard D. Tabors, 2001. "Uniform Pricing or Pay-as-Bid Pricing: A Dilemma for California and Beyond," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 01ej, University of Maryland, Department of Economics - Peter Cramton, revised 27 Jan 2001.
  14. Peter Cramton & Evan Kwerel & Gregory Rosston & Andrzej Skrzypacz, 2012. "Using Spectrum Auctions to Enhance Competition in Wireless Services," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 11ckrs, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  15. Robert Day & Peter Cramton, 2008. "Quadratic Core-Selecting Payment Rules for Combinatorial Auctions," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 08qcspr, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  16. Peter Cramton, 1997. "The FCC Spectrum Auctions: An Early Assessment," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 97jemsfcc, University of Maryland, Department of Economics - Peter Cramton, revised 12 Jul 1998.
  17. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 04jeea, University of Maryland, Department of Economics - Peter Cramton, revised 2004.
  18. Peter Cramton & Andrzej Skrzypacz & Robert Wilson, 2007. "The 700 MHz Spectrum Auction: An Opportunity to Protect Competition In a Consolidating Industry," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 07c700mhz, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
  19. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press, Princeton University Press.
  20. Paul Milgrom, 2007. "Package Auctions and Exchanges," Econometrica, Econometric Society, Econometric Society, vol. 75(4), pages 935-965, 07.
  21. John H. Kagel & Yuanchuan Lien & Paul Milgrom, 2010. "Ascending Prices and Package Bidding: A Theoretical and Experimental Analysis," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(3), pages 160-85, August.
  22. Levin, Dan & Kagel, John H & Richard, Jean-Francois, 1996. "Revenue Effects and Information Processing in English Common Value Auctions," American Economic Review, American Economic Association, American Economic Association, vol. 86(3), pages 442-60, June.
  23. Lawrence M. Ausubel & Peter Cramton & R. Preston McAfee & John McMillan, 1998. "Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 97jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  24. Marco Pagnozzi, 2010. "Are Speculators Unwelcome in Multi-object Auctions?," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 2(2), pages 97-131, May.
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Citations

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Cited by:
  1. Aytek Erdil & Paul Klemperer, 2009. "A New Payment Rule for Core-Selecting Package Auctions," Economics Papers, Economics Group, Nuffield College, University of Oxford 2009-W11, Economics Group, Nuffield College, University of Oxford.
  2. Sano, Ryuji, 2012. "Non-bidding equilibrium in an ascending core-selecting auction," Games and Economic Behavior, Elsevier, Elsevier, vol. 74(2), pages 637-650.
  3. Harbord, David & Pagnozzi, Marco, 2014. "Britain's electricity capacity auctions: lessons from Colombia and New England," MPRA Paper 56224, University Library of Munich, Germany.
  4. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers, Exeter University, Department of Economics 1405, Exeter University, Department of Economics.
  5. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," CESifo Working Paper Series, CESifo Group Munich 4545, CESifo Group Munich.
  6. Sano, Ryuji, 2013. "Vickrey-reserve auctions and an equilibrium equivalence," Mathematical Social Sciences, Elsevier, Elsevier, vol. 65(2), pages 112-117.

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