Theory, Experiment and the Federal Communications Commission Spectrum Auctions

The Federal Communications Commission uses an ascending bid auction called the Simultaneous Multi-round Auction (SMA) to assign spectrum for personal communication service licenses. Congress recently mandated that the SMA be evaluated to determine if it could be modified to allow “combinatorial” bids for packages of licenses. We review the theoretical background and prior experimental evidence relevant to the SMA procedures and their inherent defects which are driven largely by the presumption that values are common or affiliated and that bidder identities must be revealed in real time. We present results from experiments to evaluate the SMA and some its more important rules, along with a comparative test of the SMA with a combinatorial auction specifically designed for the Federal Communications Commission by Charles River and Associates. We find that several of the SMA rules hinder efficiency and create a trade-off between efficiency and time to complete the auction. In addition, when license values are superadditive the combinatorial auction outperforms the SMA, but requires much more time to complete and is not robust with respect to boundary cases.