Anglo-Dutch, Split-Award Spectrum Auctions with a Downstream Market

Treating spectrum of different bandwidths as essentially distinct inputs needed for possibly different types of services has formed the core of spectrum analysis in academic research so far. New technological advances, such as cognitive radio, now allow us to move away from this inflexibility and to open up the new possibility of making different spectrum bands compatible. Spectrum, it is envisaged, is to become divisible and homogeneous. Auctions for this case have not been previously analyzed. By suitably adapting the Anglo-Dutch spectrum auction of Binmore and Klemperer (2000) and the split-award procurement auction of Anton and Yao (1989) and combining the adapted versions, we set out an ‘Anglo-Dutch split-award auction’ for divisible and homogeneous radio spectrum. An important feature of the game is a post-auction stage where the firms who have acquired some spectrum compete in the production of radio services. The equilibrium of the complete information game is completely characterized and important differences with the procurement auction highlighted. Finally, we compare the performance of our auction mechanism with a complete information form of the Binmore – Klemperer mechanism.