Using Spectrum Auctions to Enhance Competition in Wireless Services

Competition Policy and Antitrust, Networks, the Internet, and Cloud Computing, Networks and Infrastructure and Wireless

Article Snapshot

Author(s)

Peter Cramton, Evan Kwerel, Gregory L. Rosston and Andrzej (Andy) Skrzypacz

Source

SIEPR Discussion Paper 10-015, February 2011

Summary

This paper looks at how regulators can support more competition between different wireless services.

Policy Relevance

The auctions of the electromagnetic spectrum used by wireless services can be designed to help support competition, though these efforts can sometimes do more harm than good.

Main Points

  • Sale of the rights to the electromagnetic spectrum used by wireless services by auction has been very successful.

  • Economic efficiency should be the main goal in auctioning the right to use the spectrum. A key aspect of this is designing the auctions to enhance competition between wireless service providers.

  • Raising revenues for the government should not be the main goal of the spectrum auctions.

  • Policymakers can affect competition after the auctions be several methods. These include:
    • Set-asides, which restrict participation in the auction to certain types of firms.
    • Bidding credits, which gives favored bidders like small firms a discount.
    • Spectrum caps, which cap the amount of spectrum one firm can hold within one geographic area.
    • The band plan describing the size of the area to which rights are sold.
    • The auction format, which can help control collusion between bidders.
    • Antitrust law, which can stop behavior that harms competition.

  • In practice, regulators have used these different methods with mixed results. For example, restricting auction participation to small firms can mean that larger firms with lower operating costs are excluded.

  • The most important step the government can take to enhance wireless competition is to make more spectrum available sooner rather than later.

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