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Collusive Bidding in the FCC Spectrum Auctions

Author

Listed:
  • Peter Cramton

    (University of Maryland)

  • Jesse Schwartz

    (Vanderbilt University)

Abstract

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.

Suggested Citation

  • Peter Cramton & Jesse Schwartz, 2000. "Collusive Bidding in the FCC Spectrum Auctions," Econometric Society World Congress 2000 Contributed Papers 1210, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1210
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    References listed on IDEAS

    as
    1. Cramton, Peter & Schwartz, Jesse A, 2000. "Collusive Bidding: Lessons from the FCC Spectrum Auctions," Journal of Regulatory Economics, Springer, vol. 17(3), pages 229-252, May.
    2. Sandro Brusco & Giuseppe Lopomo, 2002. "Collusion via Signalling in Simultaneous Ascending Bid Auctions with Heterogeneous Objects, with and without Complementarities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(2), pages 407-436.
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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