License Complementarity and Package Bidding: The U.S. Spectrum Auctions

61 Pages Posted: 10 Nov 2018

See all articles by Mo Xiao

Mo Xiao

University of Arizona - Eller College of Management - Department of Economics

Zhe Yuan

Alibaba Group

Date Written: September 15, 2018

Abstract

The U.S. spectrum licenses cover geographically distinct areas and are often complementary to each other. A bidder seeking to acquire multiple licenses is then exposed to risks of winning only isolated patches. To allocate licenses more efficiently, the Federal Communications Commission allowed bidders to bid for (predefined) packages of licenses in Auction 73. We estimate the magnitude of license complementarity by modeling the bidding process as an entry game with interdependent markets and evolving bidder belief. Bidders’ decisions on bidding (and not bidding) provide bounds on licenses’ stand-alone values and complementarity between licenses. We estimate the total complementarity to be around two thirds of the total bidding ($19 billion) in Auction 73. Complementarity in a 1 MHz nationwide license is worth $918 million to an average large bidder but only $120 million to an average small bidder. Our counterfactual analysis shows that the effects of package bidding on bidders’ exposure risks depend on package format and package size. More importantly, mixed package bidding increases FCC revenue substantially at the cost of reducing bidder surplus and increasing license allocation concentration.

Keywords: Spectrum Auctions, Complementarity, Package Bidding, Moment Inequalities

Suggested Citation

Xiao, Mo and Yuan, Zhe, License Complementarity and Package Bidding: The U.S. Spectrum Auctions (September 15, 2018). NET Institute Working Paper No. 18-06, October 2018 . Available at SSRN: https://ssrn.com/abstract=3266253 or http://dx.doi.org/10.2139/ssrn.3266253

Mo Xiao (Contact Author)

University of Arizona - Eller College of Management - Department of Economics ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Zhe Yuan

Alibaba Group ( email )

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