Addressing Spectrum Holdouts With A Transaction Threshold: A Theoretical Analysis
13 Pages Posted: 18 Jun 2020
Date Written: July 1, 2019
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: Suggested Citation