By Alexandra Zrenner and Chidinma Hannah Nnoromele
The Federal Communications Commission faces a congressional mandate to ensure the participation of small business in its spectrum auctions. The FCC addresses this mandate using preferences for small bidders. This paper examines the impact on auction competition and outcomes of two preferences: bid credits and closed licenses. Bid credits are subsidies for small bidders, specifically, percentage discounts for winning bids made by small bidders. Closed licenses are set-asides for small bidders, that is, only small bidders are allowed to bid on a closed license. We analyze the auction results of 7,167 spectrum licenses for personal communication services. We specifically examine the number of bidders competing for a license, and the presence and use of bid credits and closed licenses. Our results demonstrate that the efficiency gains from competition are outweighed by the efficiency losses of small bidder preferences.
Advisor: Michelle Connolly | JEL Codes: L5, L96, K20