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29 - Do Core-Selecting Combinatorial Clock Auctions Lead to High Efficiency? An Experimental Analysis of Spectrum Auction Designs
- from Part IV - Experimental Comparisons of Auction Designs
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- By Martin Bichler, Department of Informatics, Technical University of Munich, Pasha Shabalin, Astradi, Jürgen Wolf, Department of Informatics, Technical University of Munich
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
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- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
- Print publication:
- 26 October 2017, pp 640-671
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Summary
Introduction
There has been a long discussion on appropriate auction mechanisms for the sale of spectrum rights (Porter and Smith, 2006). Since 1994, the Simultaneous Multi-Round Auction (SMRA) has been used worldwide (Milgrom, 2000). The SMRA design was very successful, but also led to a number of strategic problems for bidders (Cramton, 2013). The exposure problem is central and refers to the risk for a bidder to make a loss due to winning only a fraction of the bundle of items (or blocks of spectrum) he has bid on at a price which exceeds his valuation of the won subset.
Combinatorial auctions (CAs) allow for bids on indivisible bundles avoiding the exposure problem. The design of such auctions, however, led to a number of fundamental problems, and many theoretical and experimental contributions during the past ten years (Cramton et al., 2006b). The existing experimental literature comparing SMRAs and CAs suggests that in the presence of significant complementarities in bidders’ valuations and a setting with independent private and quasi-linear valuations, combinatorial auctions achieve higher efficiency than simultaneous auctions (Banks et al., 1989; Ledyard et al., 1997; Porter et al., 2003; Kwasnica et al., 2005; Brunner et al., 2010; Goeree and Holt, 2010). Since 2008 several countries such as the U.K., Ireland, the Netherlands, Denmark, Austria, Switzerland, and the U.S. have adopted combinatorial auctions for selling spectrum rights (Cramton, 2013). While the U.S. used an auction format called Hierarchical Package Bidding (HPB) (Goeree and Holt, 2010), which accounts for the large number of regional licenses, the other countries used a Combinatorial Clock Auction (CCA) (Maldoom, 2007; Cramton, 2009), a two-phase auction format with primary bid rounds (aka. clock phase) for price discovery, which is extended by a supplementary bids round (aka. supplementary phase). The CCA design used in those countries has a number of similarities to the Clock-Proxy auction, which was proposed by Ausubel et al. (2006). It was used for the sale of blocks in a single spectrum band (i.e., paired and unpaired blocks in the 2.6 GHz band) and for the sale of multiple bands in Switzerland.
Although, spectrum auction design might appear specific, the application is a representative of a much broader class of multi-object markets as they can be found in logistics and industrial procurement. Spectrum auctions are very visible in public and successful designs are a likely role model for other domains as well.
30 - Spectrum Auction Design: Simple Auctions For Complex Sales
- from Part IV - Experimental Comparisons of Auction Designs
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- By Martin Bichler, Department of Informatics, Technical University of Munich, Jacob K. Goeree, School of Economics, UNSW Business School, Stefan Mayer, Department of Informatics, Technical University of Munich, Pasha Shabalin, Astradi
- Edited by Martin Bichler, Technische Universität München, Jacob K. Goeree, University of New South Wales, Sydney
-
- Book:
- Handbook of Spectrum Auction Design
- Published online:
- 26 October 2017
- Print publication:
- 26 October 2017, pp 672-686
-
- Chapter
- Export citation
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Summary
Introduction
The 1994 sale of radio spectrum for “personal communication services” (PCS) marked a sharp change in policy by the US Federal Communications Commission (FCC). Before turning to auctions the FCC had allocated valuable spectrum on the basis of comparative hearings (also known as “beauty contests”) and lotteries. Nobel laureate Ronald Coase long advocated that market-based mechanisms would improve the allocation of scarce spectrum resources, but his early insights were ignored for decades [1]. The PCS auction raised over six hundred million dollars for the US treasury and it was widely considered a success. Several authors discuss the advantages and disadvantages of auctions and beauty contests for allocating scarce spectrum [2, 3, 4]. For example, some argue that financially strong bidders might have advantages over weaker bidders in an auction, while others argue that with efficient capital markets such differences should be less of a concern. Nowadays, spectrum is predominantly assigned by auction, both in the US and elsewhere [5, 6], and in this paper we focus on questions of auction design.
The simultaneous multi-round auction (SMRA), which was designed for the US FCC in the early 90's has been the standard auction format for selling spectrum world wide for many years. It auctions multiple licenses for sale in parallel and uses simple activity rules which forces bidders to be active from the start. Despite the simplicity of its rules there can be considerable strategic complexity in the SMRA when there are synergies between licenses that cover adjacent geographic regions or between licenses in different frequency bands. Bidders who compete aggressively for a certain combination of licenses risk being exposed when they end up winning an inferior subset at high prices. When bidders rationally anticipate this exposure problem, competition will be suppressed with adverse consequences for the auction's performance. The exposure problem has led auction designers to consider combinatorial auctions, which enable bidders to express their preferences for an entire set of licenses directly. In fact, the design of spectrum auctions is seen as a pivotal problem im multi-object auction design and successful solutions are a likely role-model for other public or private sector auctions such as transportation or industrial procurement.
Since 2008, the combinatorial clock auction (CCA) has been used by regulators in various countries such as the Austria, Australia, Canada, Denmark, Ireland, the Netherlands, and Switzerland to sell spectrum.