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Bids for the UMTS system: An empirical evaluation of the Italian case

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  • Pasquale L. Scandizzo

    ()
    (University of Rome, Tor Vergata, Italy)

  • Marco Ventura

    ()
    (ISAE, Institute for Studies and Economic Analyses,Department of Law and Economics, Rome, Italy)

Abstract

The aim of this paper is to analyze the licensing of the telecommunication spectrum as a public good and the search for equilibrium prices through bilateral bargaining and multilateral bidding. It develops a general model of price setting under dynamic uncertainty and applies it to the Italian auction for Universal Mobile Telecommunications System (UMTS). The empirical application shows that the model can be used both to determine the base price as well as other desirable characteristics to organize an auction and to better understand, after the auction is closed, what really happened in terms of the critical factors involved. After recalling some basic concepts on spectrum rights and reviewing the general experience with UMTS auctions in europe, the formal model and its application are presented. The results confirm certain views on the Italian auction, which are widely shared but were never tested before, namely that: (i) given the initial price, the number of licenses offered for the bidding should have been fewer, or alternatively, (ii) given the number of licenses, the base price should have been higher and (iii) the main bidder underpaid for the license. The model also allows us to quantify the bidders’ reservation price and the State and the bidders’ implicit bargaining powers.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 88.

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Length: 10
Date of creation: 10 Dec 2006
Date of revision:
Handle: RePEc:rtv:ceisrp:88

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Related research

Keywords: UMTS; Auction; Real Options; Licence.;

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References

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  1. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1, January.
  3. Cramton, Peter, 1998. "Ascending auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 745-756, May.
  4. van Damme, Eric, 2002. "The European UMTS-auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 846-858, May.
  5. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  6. Damme, E.E.C. van, 2002. "The European UMTS-auction," Discussion Paper 2002-100, Tilburg University, Center for Economic Research.
  7. Andrea Prat & Tommaso M. Valletti, 2001. "Spectrum Auctious Versus Beauty Contests: Costs and Benefits," Rivista di Politica Economica, SIPI Spa, vol. 91(4), pages 65-114, April-May.
  8. Odin K. Knudsen & Pasquale L. Scandizzo, 2006. "Bringing Social Standards into Project Evaluation Under Dynamic Uncertainty," CEIS Research Paper 87, Tor Vergata University, CEIS.
  9. Valletti, Tommaso M., 0. "Spectrum trading," Telecommunications Policy, Elsevier, vol. 25(10-11), pages 655-670, October.
  10. Damme, E.E.C. van, 2002. "The European UMTS-auctions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-89584, Tilburg University.
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Cited by:
  1. Pasquale L. Scandizzo & Marco Ventura, 2008. "A model of public and private partnership through concession contracts," ISAE Working Papers 104, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

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