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Package Bidding for Spectrum Licenses

The FCC was an innovator in adopting the rules of the simultaneous ascending-price auction for its sales of spectrum licenses. While these rules have performed well in the auctions conducted so far (and would perform even better with the design improvements suggested in our first report), there are two inherent limitations in any design that seeks to assign and price the licenses individually. First, such designs create strategic incentives for bidders interested in multiple licenses that are substitutes to reduce their demands for some of the licenses in order to reduce the final prices of the others; this is the demand reduction problem. Second, even if bidders behave non-strategically, there is a fundamental problem with the basic concept of individual-license pricing when licenses are complementary. In simultaneous ascending-price auctions, from a bidder's perspective this is the exposure problem. A bidder who is unsuccessful in bidding for a large package of licenses may be left with a partial package whose total price cannot be justified in the absence of those complementary licenses it failed to win. This problem is present in any auction mechanism that sells licenses individually, with no opportunity to bid on packages. In this report our task is confined to analyses of the merits of package bidding and the practical problems of implementation. In our next report, we will outline proposals for the details of the procedural rules and other aspects of implementing a practical design, as well as the software development that would be necessary.

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Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 97cra1b.

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Length: 41 pages
Date of creation: Oct 1997
Date of revision:
Handle: RePEc:pcc:pccumd:97cra1b
Contact details of provider: Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
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  1. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December.
  2. Ledyard, John O. & Noussair, Charles & Porter, David, . "The Allocation of a Shared Resource Within an Organization," Working Papers 917, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  4. Lawrence M. Ausubel & Peter Cramton & Marek Pycia & Marzena Rostek & Marek Weretka, 2014. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1366-1400.
  5. Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19.
  6. Peter Cramton, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Papers of Peter Cramton 95jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  7. Banks, Jeffrey S. & Ledyard, John O. & Porter, David P., . "Allocating Uncertain and Unresponsive Resources," Working Papers 680, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May.
  9. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. 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 97jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  11. Jeffrey S. Banks & John O. Ledyard & David P. Porter, 1989. "Allocating Uncertain and Unresponsive Resources: An Experimental Approach," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 1-25, Spring.
  12. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, 09.
  13. Groves, Theodore & Loeb, Martin, 1975. "Incentives and public inputs," Journal of Public Economics, Elsevier, vol. 4(3), pages 211-226, August.
  14. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
  15. R. Preston McAfee & John McMillan, 1996. "Analyzing the Airwaves Auction," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 159-175, Winter.
  16. Holmstrom, Bengt, 1979. "Groves' Scheme on Restricted Domains," Econometrica, Econometric Society, vol. 47(5), pages 1137-44, September.
  17. Peter Cramton, 1997. "The FCC Spectrum Auctions: An Early Assessment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 431-495, 09.
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