A Welfare Analysis of Spectrum Allocation Policies
Thomas W. Hazlett
Roberto E. Munoz
Universidad Tecnica Federico Santa Maria
January 19, 2008
George Mason Law & Economics Research Paper No. 06-28
Economic analysis of spectrum allocation policies focuses on competitive bidding for wireless licenses. Auctions generating high bids, as in Germany and the UK, are identified as successful, while those producing lower receipts, as in Switzerland and the Netherlands, are deemed fiascoes. Yet, even full and costless extraction of license rents does not map directly to social welfare, because spectrum policies creating rents impose social costs. For example, rules favoring monopoly market structure predictably increase license values, but reduce welfare. This paper attempts to shift analytical focus to the relationship between spectrum policy (including license auctions) and efficiency in output markets. In cross-country comparisons of performance metrics in mobile telephone service markets, empirical estimates suggest that countries allocating greater bandwidth to licensed operators and achieving more competitive market structures realize demonstrable social welfare benefits. These gains generally dominate efficiencies associated with license sales. Spectrum policies and rules intended to increase auction receipts (e.g. reserve prices and subsidies for weak bidders), should be evaluated in this light.
Number of Pages in PDF File: 38
Keywords: spectrum allocation, wireless telecommunications policy, auctions, revenue extraction, mobile telephone competition, competition policy, information infrastructure
JEL Classification: D44, D61, L51, L96
Date posted: June 14, 2006 ; Last revised: December 25, 2013
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