A Stylized Model of the German UMTS Auction
This paper discusses some economic aspects of the recent German and Austrian UMTS license auctions. We consider a stylized model of the open ascending auction with incomplete information and market externalities. It is shown that, if the dominant incumbent is not successful in pushing the weakest entrant out of the market, he will face ex-post spurious price increments. We argue that this feature of the German auction design caused a significant risk for the bidding firms. In particular, being aware of these risks, an incumbent may be willing to accommodate the entrant earlier than what one would expect from the valuations alone. We compare our predictions with the observed outcomes.
|Date of creation:||11 Jan 2002|
|Note:||The authors are grateful to Tilman Börgers, Holger Müller and seminar participants in Gerzensee for useful comments. We also thank Mathias Meisel, portfolio manager at Zurich Invest, for insightful discussions about the telecommunications industry. Financial support by the Sonderforschungsbereich 504 is gratefully acknowledged.|
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