| By: |
Mo Xiao (Eller College of Management, University of Arizona.);
Zhe Yuan (Alibaba Group) |
| 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 |
| JEL: |
L5 L8 |
| Date: |
2018–09 |
| URL: |
http://d.repec.org/n?u=RePEc:net:wpaper:1806&r=des |