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Package Bidding for Spectrum Licenses

Peter Cramton (), John McMillan, Paul Milgrom (), Bradley Miller (), Bridger Mitchell (), Daniel Vincent and Robert Wilson ()

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: 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.

Keywords: Auctions; Spectrum Auctions; Multiple-Round Auctions; Efficiency (search for similar items in EconPapers)
JEL-codes: D44 D61 L96 (search for similar items in EconPapers)
Pages: 41 pages
Date: 1997-10
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