Auction Bling

04Dec07

The FCC will be auctioning off part of the US wireless spectrum in a little more than a month. I tried for a while to get some information on what sort of auction mechanism will actually be used and seem to have found out that:

(page 19) … the bidding methodology for Auction 73 will be simultaneous multiple round (“SMR”) bidding for the A, B, D, and E Block licenses and an auction design with hierarchical package bidding (“HPB”) for the C Block licenses.

From reading a little bit, it seems that the HPB is a little less complicated than a full-fledged combinatorial auction. Namely, (on page 39) they describe that the C Block is composed of 12 licenses, and that you can place 2 kinds of bids:

  • a bid on an individual license
  • an aggregate bid on one of the three “packages” of licenses {1-8}, {9, 11}, {10, 12}.

The auction continues for multiple rounds. At the end, the licenses are allocated in such a way so as to maximize revenue (each bidder pays, for each of its winning bids, an amount equal to that bid — it’s like a first-price auction).

Thus the auction assumes implicitly that if having license set X is worth VX to me and having license set Y is worth VY to me, and X and Y are disjoint, then having all licenses in (X union Y) should be worth at least VX+VY to me. Conceivably this could fail to be true in some situation, for example, if a carrier wants to obtain just a single regional license, but doesn’t care where. But this doesn’t seem to happen in practice and the FCC decided that HPB does fix the “main” issue, the exposure problem.



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