Mutually Destructive Bidding: The FCC Auction Design Problem |
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Authors: | Bykowsky Mark M Cull Robert J Ledyard John O |
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Institution: | (1) Automated Credit Exchange, 15 S. Raymond Ave. Suite 200, Pasadena, CA, 91105;(2) World Bank, 1818 H St. NW, Washington, D.C., 20433;(3) Department of Humanities and Social Sciences 228-77, California Institute of Technology, #1201 E. California St., Pasadena, CA, 91125 |
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Abstract: | In general, synergies across license valuations complicate the auction design process. Theory suggests that a simple (i.e., non-combinatorial) auction will have difficulty in assigning licenses efficiently in such an environment. This difficulty increases with increases in fitting complexity. In some environments, bidding may become mutually destructive. Experiments indicate that a properly designed combinatorial auction is superior to a simple auction in terms of economic efficiency and revenue generation in bidding environments with a low amount of fitting complexity. Concerns that a combinatorial auction will cause a threshold problem are not borne out when bidders for small packages can communicate. |
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