Abstract

Dissatisfaction with previous assignment mechanisms and the desire to raise revenue induced Congress to grant the FCC authority to auction radio licenses. The debate over an appropriate auction design produced a variety of innovative proposals. One point that could not be unambiguously resolved [in the PCS debate] was whether the auction rules should permit combinatorial bids (i.e., bids on packages of licenses). In the end, the FCC chose not to do so because of perceived complexities with permitting such bids and concerns over the performance properties of a combinatorial auction. This paper presents an analysis of the proper role of combinatorial auctions as a mechanism for assigning spectrum licenses. In general, synergies across license valuations complicate the auction design process. Theory suggests that a simple (i.e., non-combinatorial) auction will have difficulty in assigning licenses efficiently in such an environment. This difficulty increases with increases in fitting complexity. In some environments, bidding may become mutually destructive. Experiments indicate that a combinatorial auction is superior to a simple auction in terms of economic efficiency and revenue generation in bidding environments with a low amount of fitting complexity. Concerns that a combinatorial auction will cause a threshold problem are not borne out when bidders for small packages can communicate.

Citations