The Greatest Auction in History

0— +1— In August 1993 President Bill Clinton signed a historic law granting the U.S. Federal Communications Commission (FCC) the authority to auction spectrum licenses.1 The origin of this law dates back to Ronald Coase’s 1959 proposal to sell the radio spectrum. Congress gave the FCC until August 1994 to begin the fi rst auction. To someone inexperienced in the activities of large bureaucracies, a year sounds adequate to design and operate an auction, but it is remarkable that the FCC was able to meet this requirement and commence its fi rst auction on July 25, 1994. In order to run an auction, the FCC needed to choose an auction design, and in order to do that, it was required by law to provide adequate time for persons to fi le formal comments and reply comments on its proposed procedures. These comments, along with staff recommendations, were used by the FCC commissioners to determine an auction form that would survive judicial challenge. Finally, the FCC staff then implemented the commission’s decision, relying on outside contractors to develop auction software. Timely implementation was particularly challenging given that the commission decided on a novel auction method, the electronic simultaneous multipleround bidding auction, based on economic advice. Congress and many economists underestimated the number of choices in designing an auction. In modern business parlance, auctions have many “dials and levers” that can be used to tweak per for mance and outcomes, but the presence of these choices creates an enormous economic and c h a p t e r s e v e n