Two essays on FCC spectrum auctions.

Abstract

The dissertation consists of two essays on FCC spectrum auctions. The Federal Communications Commission (FCC) has used auctions to allocate radio spectrum frequencies to wireless service providers since 1994. The innovation of the auction design is that it offers many heterogeneous licenses simultaneously in one ascending auction. The first essay studies changes in bidders' bidding behavior in response to changes in the auction rules that occurred over the past 15 years. It particularly focuses on the introduction of new auction rules intended to mitigate collusive behavior such as click box bidding and anonymous bidding. We examine the frequencies of seemingly collusive bids such as retaliatory bids and non-collusive bids such as straightforward bids using data from 4 auctions: the PCS C Block, the PCS C\&F Block Reauction, the Advanced Wireless Service auction and the 700 MHz auction. While this simple descriptive exercise has a number of limitations, the data suggest that these rule changes have limited the ability of firms to tacitly collude. The second essay develops an empirical model and procedure to estimate bidder valuations. Given that the complex nature of the auction does not admit formal modeling in a general setting, I do not explore a particular model of equilibrium bidding. Instead, I propose two revealed preference inequalities which should hold in any reasonable model of these auctions. I employ an estimation strategy that generates a map from the observed bidding behavior to a set of distributions of bidder valuations consistent with these behavioral assumptions. I apply the empirical model to an auction held in 2006. Using the estimated distribution of bidder valuations, I estimate bidder markups in order to gauge the level of competition in this auction. The estimated bidder markups are large: the median for local bidders such as rural telephone companies is 26%, whereas it is 31% for global bidders such as nationwide carriers. This suggests that there were large distortionary effects of informational rents in the auction.