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Evaluation of the Impact of New Rules in FCC’s Spectrum Incentive Auction

By Elizabeth Lim, Akshaya Trivedi and Frances Mitchell

On March 29, 2016, the FCC initiated its first ever two-sided spectrum auction. The auction closed approximately one year later, having repurposed a total of 84 megahertz (MHz) of spectrum. The “Incentive Auction” included three primary components: (1) a reverse auction where broadcasters bid on the price at which they would voluntarily relinquish their current spectrum usage rights, (2) a forward ascending clock auction for flexible use wireless licenses which determined the winning bids for licenses within a given geographic region, and (3) an assignment phase, where winning bidders from the forward auction participated in single-bid, second price sealed auctions to determine the exact frequencies individual licenses would be assigned within that geographic region. The reverse auction and the forward auction together constituted a “stage.” To guarantee that sufficient MHz were cleared, the auction included a “final stage rule” which, if not met, triggered a clearing of the previous stage and the start of a new stage. This rule led to a total of four stages taking place in the Incentive Auction before the final assignment phase took place. Even at first glance, the Incentive Auction is unique among FCC spectrum auctions. Here we consider the estimated true valuation for these licenses based on market conditions. We further compare these results to more recent outcomes in previous FCC spectrum auctions for wireless services to determine if this novel auction mechanism
impacted auction outcomes.

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Advisor: Michelle Connolly | JEL Codes: L5, O3, K2, D44, L96

A Brief Review and Analysis of Spectrum Auctions in Canada

By Martínez-Cid, Wenfei Jiao, and Zeren Zhang

We begin by explaining the importance of efficient spectrum allocation and reviewing Canada’s recent spectrum allocation history. We then use a dataset covering more than 1,200 licenses auctioned from 2001 to 2015 that seeks to account for each auction’s particular rules. Our results confirm that measures of demand such as population covered, income levels, frequency levels, bandwidth, etc. indeed drive license valuation. We also quantify the negative impact on price of setting aside particular license auctions for new entrants, suggesting that the set-aside provision constitutes an implicit subsidy for those firms.

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Advisor: Michelle Connolly | JEL Codes: D44, D45, D47, L51, O33

Small Bidder Preferences in FCC Spectrum Auctions

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.

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Advisor: Michelle Connolly | JEL Codes: L5, L96, K20

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