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.
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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number
98cra2.
Length: 34 pages Date of creation: Mar 1998 Date of revision: Handle: RePEc:pcc:pccumd:98cra2
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 D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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