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7 - Spectrum Auction Design

from Part II - The Combinatorial Clock Auction Designs

Published online by Cambridge University Press:  26 October 2017

By
Peter Cramton
Edited by
Martin Bichler  and
Jacob K. Goeree
Peter Cramton
Affiliation:
Department of Economics, University of Maryland
Martin Bichler
Affiliation:
Technische Universität München
Jacob K. Goeree
Affiliation:
University of New South Wales, Sydney
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Summary

Introduction

Fred Kahn recognized the important role of market design in improving how markets work. He believed that prices should be set in an open competitive process, rather than administratively. I had the pleasure of working with Fred on a project to evaluate the pricing rule in California's electricity market.We examined whether the electricity market should use uniform pricing or pay-as-bid pricing (Kahn et al. 2001). In this tribute to Fred Kahn, I also focus on auction design, but in the communications industry.

Spectrum auctions have been used by governments to assign and price spectrum for about 20 years. Over those years, the simultaneous ascending auction, first introduced in the US in 1994, has been the predominant method of auctioning spectrum. The auctions have proved far superior to the prior methods of beauty contests and lotteries (Cramton 1997; Milgrom 2004).

Despite the generally positive experience with the simultaneous ascending auction, several design issues have surfaced. Some were addressed with minor rule changes. For example, bidders’ use of trailing digits to signal other bidders and support tacit collusion was eliminated by limiting bids to integer multiples of the minimum increment (Cramton and Schwartz 2002). However, many other design problems remain. In this paper, I identify these problems, and describe a new approach—the combinatorial clock auction—which is based primarily on the clock-proxy auction (Ausubel et al. 2006), which addresses the main limitations of the simultaneous ascending auction.

My focus here is on spectrum auction design, rather than spectrum policy more generally. Certainly, communications regulators face many other critical challenges, such as how best to free up new spectrum for auction (Cramton et al. 1998), or whether an auction is needed at all (FCC 2002). For some allocations, it is better to set aside the spectrum for common property use, as is done with unlicensed spectrum. In particular, for applications that do not create additional scarcity, the commons model is better than the auction model.

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Chapter
Information
Handbook of Spectrum Auction Design , pp. 141 - 169
Publisher: Cambridge University Press
Print publication year: 2017

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References

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  • Spectrum Auction Design
  • Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
  • Book: Handbook of Spectrum Auction Design
  • Online publication: 26 October 2017
  • Chapter DOI: https://doi.org/10.1017/9781316471609.008
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  • Spectrum Auction Design
  • Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
  • Book: Handbook of Spectrum Auction Design
  • Online publication: 26 October 2017
  • Chapter DOI: https://doi.org/10.1017/9781316471609.008
Available formats
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To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Spectrum Auction Design
  • Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
  • Book: Handbook of Spectrum Auction Design
  • Online publication: 26 October 2017
  • Chapter DOI: https://doi.org/10.1017/9781316471609.008
Available formats
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