NBER Working Paper No. 14765, March 2009
This looks at why bidders pay different prices for similar rights in FCC auctions for rights to use wireless spectrum.
It would be difficult to redesign FCC spectrum auctions so that outcomes are more predictable, but forecasting and strategic bidding can reduce bidders' risk.
The FCC’s auctions are “simultaneous ascending auctions;” rights for each geographic region are sold at the same time. Because these auctions sell multiple goods, bidders face complications:
Bidders, especially new entrants, often need rights nationwide, not just in one or two regions. A bidder faces “exposure” risk if he wins only some rights; if he does not win all of them, the ones he does win are of little use to him and are hard to resell.
A bidder who spends his whole budget to win one auction risks losing another he needs.
Proposals to allow bidders to bid on a package of related rights also have complexity problems.
Looking at each bidder’s budget and summing up each bidders’ bids in the previous round sometimes could help bidders predict final auction prices and estimate how much to bid.
Bidders can control the pace of bidding to gain information.
A bidder might increase bids early to encourage all the other bidders but one to drop out. In FCC auctions, bidders control pacing by deferring bids on some areas, by switching bids from one area to another, and by suddenly “jumping” up some bids.
In the FCC’s auction for advanced wireless spectrum; a new entrant, SpectrumCo, was able to acquire the spectrum it needed for a good price by using forecasting and careful strategy.