Addressing Spectrum Holdouts With A Transaction Threshold: A Theoretical Analysis

13 Pages Posted: 18 Jun 2020

See all articles by Thomas Randolph Beard

Thomas Randolph Beard

Auburn University - Department of Economics

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Michael Stern

Auburn University - Department of Economics

Date Written: July 1, 2019

Abstract

When private parties attempt to accumulate spectrum via market transactions, they face the potential for strategic holdouts. Recently the Federal Communications Commission requested comment on a novel solution for the holdout problem: once market transactions have led to agreements with incumbents holding licenses for some large share of the required licenses (say, 80%) in the target band, the Commission would then require migration of the remaining licenses to new comparable spectrum, the costs of which are borne by the new broadband licensee. In this BULLETIN, we evaluate the suitability of such a proposal to address the holdout problem. In our model, a license aggregator seeks to obtain licenses secretly for a socially-valuable repurposing, but the probability the innovator’s plan is revealed to incumbent licensees rises as more licenses are acquired, exacerbating the holdout problem. We then consider whether a transaction threshold may effectively address the holdout problem by permitting, probabilistically at least, a positive return to the innovator. We find that the Commission’s proposed transaction threshold is supported by economic theory and thus would permit the socially-valuable repurposing of spectrum to occur.

Keywords: Spectrum, Holdouts, Federal Communications Commission

JEL Classification: L86

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Stern, Michael, Addressing Spectrum Holdouts With A Transaction Threshold: A Theoretical Analysis (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3420470 or http://dx.doi.org/10.2139/ssrn.3420470

Thomas Randolph Beard

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States

George S. Ford (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Michael Stern

Auburn University - Department of Economics ( email )

Auburn, AL 36849
United States

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