Handbook of Spectrum Auction Design

In the past two decades, telecommunications has turned into a highly competitive industry where companies are competing to buy valuable spectrum. Following the successful Personal Communications Services (PCS) Auction conducted by the US Federal Communications Commission in 1994, auctions have replaced traditional ways of allocating valuable radio spectrum such as comparative hearings (sometimes referred to as ”beauty contests”), or lotteries. In a spectrum auction a government uses an auction to sell the licenses to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Spectrum auctions have raised hundreds of billion dollars worldwide and have become a role model for market-based approaches in the public and private sectors. The allocation of spectrum licenses for several years provides strong investment incentives for the carriers. They shape the mobile telephony market in a country and have significant impact on the prices paid by and the service provided to end consumers. The PCS auction was organized as a simultaneous multi-round auction (SMRA), a simple but flexible format to sell multiple objects in parallel and has many advantages. This auction format allows bidders to compete for licenses individually even though they typically value certain combinations. Unfortunately, SMRA exposes bidders to risk when they bid aggressively for a desired combination but end up winning an inferior subset. Foreseeing this possibility, bidders may act cautiously with adverse effects for revenue and efficiency. Combinatorial auctions allow for bids on combinations of licenses and thus hold the promise of improved performance. Spectrum auction design has seen several innovations recently such as the single-stage and the two-stage combinatorial clock auction, hierarchical package bidding, or sealed-bid combinatorial auctions. Combinatorial auctions allow bidders to express complementary valuations for packages of spectrum, however, they also lead to new design challenges such as the computational hardness of the allocation problem, or the combinatorial growth in the number of package bids in some auction formats. The motivation for this edited volume came from discussions with regulators, consultants, and telecoms who were asking for literature on recent trends in spectrum auction design. Spectrum auctions are being conducted regularly across the world, and apart from academics and students in the various fields, practitioners want to get an overview of various developments in this field. More generally speaking, the contributions in this book deal with resource allocation problems involving hard computational allocation problems, and strategic market participants. These questions are fundamental to computer science, economics, and operations research alike. Actually, combinatorial auctions are only possible nowadays due to the substantial advances in