Opportunity cost of spectrum for mobile communications: Evaluation of spectrum prices in Bangladesh

The purpose of this study is to focus attention on the choice of the reserve price made by the telecom regulator to explain the under-performance of spectrum auctions in Bangladesh. The overestimation of the reserve prices for several auctions in Bangladesh including the auction of the 3G – 2100 MHz band in 2013, the 2G - 1800 MHz band in 2015, and the 4G – 1800 and 2100 MHz bands in 2018 is established by comparing the reserve prices to the economic value of spectrum, determined by using the engineering valuation and production function approaches. Possible reasons for the inflation of the reserve price are discussed.     

Dynamic usage of narrowband spectrum

We examine the potential for expansion of the white space spectrum sharing model in the 400 MHz band. As opposed to UHF broadcast spectrum, which contains unassigned or idle segments known as white spaces, the 400 MHz band is characterised by intensive licence usage. However, productive spectrum usage does not guarantee allocative efficiency, which would require knowledge of the highest value service for each licence. 400 MHz frequencies are not priced on opportunity cost. It is therefore difficult to ascertain the economically efficient mix of services to deploy in the 400 MHz band. Drawing parallels with the high-economic value revealed and generated through the operations of unlicensed white space devices in UHF broadcast spectrum, we identify untapped 400 MHz spectrum capacity, which we refer to as narrowband spaces. Encouraging dynamic spectrum usage of narrowband spaces could, similarly to TV white space usage help realise the efficient allocation of the 400 MHz band. However, the narrowband nature of the 400 MHz licences and high licensing turnover imply a significantly different concept of dynamic spectrum access than that considered for TV Bands. The paper discusses regulatory implications and the type of services suited to exploit narrowband spaces.     

Common Values and Low Reserve Prices

I show that the benefit of a high reserve price in a common‐values ascending auction is lower than in the observationally equivalent private values setting. Put another way, when bidders have common values, empirical estimation based on a private‐values model will overstate the value of a high reserve price. Via numerical examples, I show this same ranking typically applies to the level of the optimal reserve price as well, and often to the benefit of any reserve price, not just high ones. With common values, the optimal reserve can even be below the seller's valuation, which is impossible with private values.     

The business case of a network that serves both public safety and commercial subscribers

Deploying a single nationwide broadband wireless network to serve all public safety users would have great advantages over the existing fragmented public safety systems. A nationwide system could be created to serve both public safety and commercial subscribers, which would allow a provider to exploit important economies but force it to meet the more costly requirements of public safety. This paper analyzes the viability of a public-private partnership that serves public safety and commercial subscribers from a for-profit provider's perspective. A model is presented that estimates the net present value (NPV) of a wireless network by calculating costs based on the number of cell sites required and revenue based on the projected number of subscribers acquired. The model is applied to both a network that serves only commercial subscribers on 10 MHz of 700 MHz spectrum and a public-private partnership that serves commercial subscribers and public safety personnel on 20 MHz of 700 MHz spectrum. It is found that NPV is greater for the public-private partnership than for the commercial-only network for any population density, which shows that the value of 10 MHz of spectrum exceeds the cost of meeting public safety requirements. Furthermore, the paper demonstrates that NPV/cell increases with population density, so urban areas are profitable and rural areas are unprofitable. The paper demonstrates that a partnership covering 94% of the US population breaks even because the most urban 56% of population subsidizes coverage for the next 38%. If initial deployment is subsidized, a financially sustainable public-private partnership can serve much more than 94%. Additionally, it is shown that allowing urban municipalities to opt-out of the partnership can significantly increase the subsidies required.     

Estimating demand from eBay prices

This paper presents results for identification and estimation of the value distribution from eBay auction prices. The paper presents results for eBay type auctions with independent private values and unobserved participation. It is first shown that the distribution of values is identified from observing the distribution of prices and knowing the distribution of potential bidders. The main identification result presents conditions for which the distribution of values and the distribution of potential bidders are simultaneously identified. Not surprisingly, the intuition is similar to the standard results for identifying demand from observed equilibrium prices. The estimation method suggested by the identification results is used to estimate the value distribution for the “C5” Chevrolet Corvette sold on eBay. The results suggest that a simple OLS model on prices will over estimate the mean value of the item. The estimation results are then used to calculate the optimal reserve price for these cars. The estimated optimal reserves are compared to the actual reserves. Actual hidden reserves are set much higher than actual non-hidden reserves. The evidence suggests sellers set Buy-It-Nows and hidden reserves optimally to account for re-listing opportunities.     

Optimal mechanisms for an auction mediator

We consider a dynamic auction environment with a long-lived seller and short-lived buyers mediated by a third party. A mediator has incomplete information about traders’ values and selects an auction mechanism to maximize her expected revenue. We characterize mediator-optimal mechanisms and show that an optimal mechanism has a simple implementation as a Vickrey auction with a reserve price where the seller pays to the mediator only a fixed percentage from the closing price.     

Optimal reserve prices in sealed-bid auctions with reference effects

The reference effect and loss aversion are incorporated into the buyer’s utility in the symmetric independent private value models of sealed-bid auctions. The buyer’s equilibrium bidding strategy and the seller’s optimal reserve price are derived for the first-price and second-price sealed-bid auctions. In both auction mechanisms, the seller’s optimal reserve price and expected revenue are increasing in the reference point. We compare the seller’s expected revenues as well as the optimal reserve prices in the two auctions. The results show that the seller will set a higher optimal reserve price but obtain lower optimal expected revenue in the second-price auction compared to the first-price auction. Further, we extend the model to the gain-seeking case, and endogenize the reference point as the ex-ante expected price of the item in equilibrium. In contrast to the loss-averse case, the seller will set a lower optimal reserve price but obtain higher optimal expected revenue in the second-price auction compared to the first-price auction if the buyers are gain-seeking. With an endogenous reference point, similar results are obtained in terms of revenue comparison between the two auctions.     

Secret reserve prices in first-price auctions

This article offers a theoretical explanation for the use of secret reserve prices in auctions. I study first-price auctions with and without secret reserve price in an independent private values environment with risk-neutral buyers and a seller who cares at least minimally about risk. The seller can fix the auction rules either before or after she learns her reservation value. Fixing the rules early and keeping the right to set a secret reserve price can be strictly optimal. Moreover, I describe the relation of using a secret reserve price to phantom bidding and non-commitment to sell.     

Synergistic valuations and efficiency in spectrum auctions

In spectrum auctions, bidders typically have synergistic values for combinations of licenses. This has been the key argument for the use of combinatorial auctions in the recent years. Considering synergistic valuations turns the allocation problem into a computationally hard optimization problem that generally cannot be approximated to a constant factor in polynomial time. Ascending auction designs such as the Simultaneous Multiple Round Auction (SMRA) and the single-stage or two-stage Combinatorial Clock Auction (CCA) can be seen as simple heuristic algorithms to solve this problem. Such heuristics do not necessarily compute the optimal solution, even if bidders are truthful. We study the average efficiency loss that can be attributed to the simplicity of the auction algorithm with different levels of synergies. Our simulations are based on realistic instances of bidder valuations we inferred from bid data from the 2014 Canadian 700 MHz auction. The goal of the paper is not to reproduce the results of the Canadian auction but rather to perform “out-of-sample” counterfactuals comparing SMRA and CCA under different synergy conditions when bidders maximize payoff in each round. With “linear” synergies, a bidder's marginal value for a license grows linearly with the total number of licenses won, while with the “extreme national” synergies, this marginal value is independent of the number of licenses won unless the bidder wins all licenses in a national package. We find that with the extreme national synergy model, the CCA is indeed more efficient than SMRA. However, for the more realistic case of linear synergies, SMRA outperforms various versions of CCA that have been implemented in the field including the one used in the Canadian 700 MHz auction. Overall, the efficiency loss of all ascending auction algorithms is small even with high synergies, which is remarkable given the simplicity of the algorithms.     

Total and per capita value of food loss in the United States

There are few peer-reviewed or major published studies that estimate the total amount of food loss in developed countries and even fewer attempt to estimate the monetary value. We compiled estimates of the amount and value of food loss for more than 200 individual foods in the United States using the US Department of Agriculture’s Economic Research Service’s Loss-Adjusted Food Availability data and then aggregated these values to estimate the total value of food loss and the value by food group. The results indicate that in 2008, the estimated total value of food loss at the retail and consumer levels in the United States as purchased at retail prices was $165.6 billion. The top three food groups in terms of the value of food loss at these levels are: meat, poultry, and fish (41%); vegetables (17%); and dairy products (14%). Looking more closely at the estimates for the consumer level, this level of loss translates into almost 124 kg (273 lb) of food lost from human consumption, per capita, in 2008 at an estimated retail price of $390/capita/year. Food loss represents a significant share of household food expenditures: our estimates suggest that the annual value of food loss is almost 10% of the average amount spent on food per consumer in 2008 and over 1% of the average disposable income. This consumer level loss translates into over .3 kg (0.7 lb) of food per capita per day valued at $1.07/day. Our estimates of the total value of food loss in the United States and loss estimates by food group are useful in that they can generate awareness of the issue among the food industry members, governments, and consumers. Potential large-scale approaches and economic incentives to mitigate food loss in developed countries are also discussed.     

How Do Land Auction Formats Influence the Market Structure and Aggregate Surplus of Real Estate Development?

This article proposes a duopoly dynamic game theoretic model to investigate the market structure and aggregate surplus of real estate development when land is sold in a sealed‐bid first price auction vis‐à‐vis an open English auction. It relaxes the assumption of symmetric bidders. The land values have common value and private value components. We find that the sealed‐bid first price auction introduces competition in the real estate development market. The open English auction leads a monopoly market. State agencies are recommended to increase the aggregate surplus of real estate development by publishing past bidding information under the sealed‐bid first price auction and reducing information asymmetry between bidders.     

Analysing the C-Band spectrum auctions for 5G in Europe: Achieving efficiency and fair decisions in radio spectrum management

This paper offers a detailed analysis of selected regulatory parameters used as instruments to promote efficiency with fairness for all stakeholders (in the legal sense of equity) in 5G spectrum auctions. Data were collected from sixteen auctions for the C-band that took place in the Member States of the European Union (EU) and in the United Kingdom (UK) between 2017 and 2020 for the introduction of the fifth generation (5G) of mobile communication technology. The selected instruments of intervention are: spectrum packaging, spectrum caps, set-asides, geographical scope of the license, license duration, various forms of license obligations, reserve prices and auction format.Significant differences were observed in national approaches to spectrum packaging, license obligations and reserve prices for efficiency purposes. Our analysis also shows that European national regulators are paying increasing attention to concerns over fairness of decisions on spectrum, or equity, especially by creating opportunities for local private networks to access the spectrum and by imposing requirements on network operators to guarantee more uniform population coverage of newly created 5G networks.     

Spectrum Auction Design

Spectrum auctions are used by governments to assign and price licenses for wireless communications. The standard approach is the simultaneous ascending auction, in which many related lots are auctioned simultaneously in a sequence of rounds. I analyze the strengths and weaknesses of the approach with examples from US spectrum auctions. I then present a variation-the combinatorial clock auction-which has been adopted by the UK and many other countries, which addresses many of the problems of the simultaneous ascending auction while building on its strengths. The combinatorial clock auction is a simple dynamic auction in which bidders bid on packages of lots. Most importantly, the auction allows alternative technologies that require the spectrum to be organized in different ways to compete in a technology-neutral auction. In addition, the pricing rule and information policy are carefully tailored to mitigate gaming behavior. An activity rule based on revealed preference promotes price and assignment discovery throughout the clock stage of the auction. Truthful bidding is encouraged, which simplifies bidding and improves efficiency. Experimental tests and early auctions confirm the advantages of the approach.     

Auctions with quantity externalities and endogenous supply

This paper studies the design of license auctions when the number of licenses allocated in the auction determines structure of the post-auction market. I first show that a sequence of conditional reserve prices that specify minimum acceptable bid at each supply level can be used to determine supply endogenously. Then I construct a static auction called multi-dimensional uniform-price auction and a dynamic auction called Walrasian clock auction that allow the auctioneer to condition reserve price on supply and allow bidders to condition bids on supply. I show that both proposed auctions can implement the efficient market structure that maximizes total surplus in the post-auction market in a dominant strategy equilibrium. I next characterize the optimal auction and show that the two proposed auctions can yield the optimal revenue under a sequence of optimal reserve prices.     

Low price equilibrium in multi-unit auctions: the GSM spectrum auction in Germany

The second–generation (GSM) spectrum auction in Germany is probably the most clear cut example of a low price outcome in a simultaneous ascending-bid multi-unit auction. The present paper gives an account of the events, describes the auction rules and market conditions, and provides a game theoretic explanation of low price equilibrium in simultaneous, ascending-bid multi-unit auctions. In particular, it is shown that in the unique equilibrium that survives iterated elimination of dominated strategies, the efficient allocation is reached at minimum bids.     

PENNIES FROM EBAY: THE DETERMINANTS OF PRICE IN ONLINE AUCTIONS*

This paper presents an exploratory analysis of the determinants of prices in online auctions for collectible United States one‐cent coins at the eBay web site. Starting with an initial data set of 20,000 auctions, we perform regression analysis on a restricted sample of 461 coins for which we obtained estimates of book value. We have three major findings. First, a seller's feedback ratings, reported by other eBay users, have a measurable effect on her auction prices. Negative feedback ratings have a much greater effect than positive feedback ratings do. Second, minimum bids and reserve prices have positive effects on the final auction price. In particular, minimum bids appear only to have a significant effect when they are binding on a single bidder, as predicted by theory. Third, when a seller chooses to have her auction last for a longer period of days, this significantly increases the auction price on average.     

Reserve Prices in Repeated Auctions

This paper aims to estimate the effect of imposing a reserve price in repeated auctions of homogeneous items. I model the behavior of impatient bidders who search for the best auction outcome over time. The model is used to develop estimating equations for the bidders’ valuations, and to evaluate the effect of reserve prices on bids and revenue. Using data collected from surplus auctions of personal computer processors, I find economically significant gains from imposing a reserve price. The revenue-maximizing reserve price improves revenue by about 23% for a large subsample of the auctions in the data.     

Collusion through Coordination of Announcements

A theory is developed to explain how sellers can effectively collude by coordinating on list prices (or surcharges), while leaving sellers to set their final prices. List prices are interpreted to be cheap talk announcements about cost information unknown to buyers. Buyers use those announcements to decide whom to invite to their procurement auction and the reserve price to set. By coordinating on a high list price to signal high cost, sellers produce supracompetitive prices by inducing buyers to be less aggressive, as reflected in a higher reserve price. We show that collusion can raise social welfare.     

Information disclosure in optimal auctions

This paper analyzes a situation in which the seller controls the accuracy of what potential buyers learn about their valuation of a good to be sold. This setting is related to many real situations such as home sales, antique auctions, and digital platforms such as Google and Facebook selling online advertising slots. Two important questions arise: what is the optimal selling mechanism, and what is the optimal disclosure policy of the seller. Under the assumption of private values, a simple auction with a reserve price is the optimal mechanism. What we show is that the amount of (costly) information provided increases with the number of potential bidders when using the optimal mechanism and is greater than when the object is always sold. Because information changes the distribution of a bidder’s expected valuations, the optimal reserve price also changes, so that the number of bidders (indirectly) affects the reserve price. We show that as the number of bidders increases, the optimal reserve price becomes more restrictive.     

Bids for the UMTS system: An empirical evaluation of the Italian case

The aim of this paper is to analyze the licensing of the telecommunication spectrum as a public good and the search for equilibrium prices through bilateral bargaining and multilateral bidding. It develops a general model of price setting under dynamic uncertainty and applies it to the Italian auction for Universal Mobile Telecommunications System (UMTS). The empirical application shows that the model can be used both to determine the base price as well as other desirable characteristics to organize an auction and to better understand, after the auction is closed, what really happened in terms of the critical factors involved. After recalling some basic concepts on spectrum rights and reviewing the general experience with UMTS auctions in Europe, the formal model and its application are presented. The results confirm certain views on the Italian auction, which are widely shared but were never tested before, namely that: (i) given the initial price, the number of licenses offered for the bidding should have been fewer, or alternatively, (ii) given the number of licenses, the base price should have been higher and (iii) the main bidder underpaid for the license. The model also allows us to quantify the bidders’ reservation price and the State and the bidders’ implicit bargaining powers.