What Really Matters in Spectrum Allocation Design

Abstract

Wireless license auctions have successfully replaced “beauty contests” in many countries. Competitive bidding (1) puts spectrum rights in the hands of the most productive firms; (2) reduces rent-seeking costs; and (3) captures license values for the public, potentially reducing costly tax distortions. Economists and policy makers have asymmetrically focused on (3). Yet, the overwhelming consumer welfare gains are produced in output (retail services) markets, not by extracting revenues from the sale of spectrum inputs. This fact leads to powerful policy implications, supporting liberal policies that permit market rivals to (quickly) access abundant bandwidth.

Keywords: CMRS, CTIA, cellular, Connecting America, data services, FCC, Federal Communications Commission National Broadband Plan, IMF, International Monetary Fund, Internet, John McMillan, market inefficiencies, MOU, Milgrom, minutes of use, mobile telephone, networks, Paul Klemperer, text messages, web

JEL Classification: L96