An article co-authored by Brattle economists discussing the Federal Communication Commission’s (FCC) recent incentive auction has been featured on two telecommunications and media law blogs published by Hogan Lovells LLP: Global Media and Communications Watch and International Spectrum Review.
The article, “Truth or Dare: Encouraging Truthful Bidding in the US Incentive Auction,” is co-authored by Brattle principal Coleman Bazelon, associate Giulia McHenry, and Trey Hanbury of Hogan Lovells. In the article, the authors explore the incentives for truthful bidding in the FCC’s recently-proposed incentive auction of up to 120 MHz of the nation’s over-the-air television frequencies. The auction begins with a “reverse” auction for the broadcasters’ spectrum, in which the government buys, rather than sells, the spectrum used by the broadcasters. The FCC is currently considering two designs for this reverse auction: a single-round, sealed bid auction; or a multiple-round, descending clock auction.
The authors explain that when designed properly, the voluntary incentive auction should ensure that spectrum is reallocated only when the new uses are more valuable than the old ones; however, problems occur when the auction rules encourage participating bidders to bid higher than their truthful value. The article illustrates that the most economically efficient auction is one where every participant’s best, profit-maximizing choice is to bid exactly what the object is worth to that bidder. A key challenge for the FCC, according to the authors, is to design an auction that both (a) minimizes bidder incentives to bid more than they are willing to accept, and (b) provides ample assurance that incumbents will never have to sell at less than the value that they place on the license and will likely sell for higher than the value they place on the license.