Another use for VCG
The FCC is in charge of distributing frequencies for any TV, or phone company, and the created the “Incentive Auction” to redistributed the frequencies which media companies (both TV and Phone) owned. Previously the frequencies were distributed to companies who wanted them if there was a chunk big enough for their needs at the time they asked. With more companies in the hunt for frequencies, the FCC began to run out of space for everyone, particularly because the slots allocated to companies were allocated by fitting them in blocks thats were big enough (not allocating slots in order) leaving unused frequencies between blocks, but not enough space between blocks to allocate those to another company. This waste inspired them to run an auction to reorganize the slots to get rid of the wasted space.
The FCC’s auction was slightly more complicated than the auctions we discussed in class, but along the same lines using the VCG procedure to determine prices. The FCC’s auction had two phases which they called the backwards and forwards auction. The purpose of the backwards auction was to free up slots and the forwards auction re divied up the slots to all the participating companies. In the backwards auction the companies which wanted a chance to bid for more shares and others who were willing to shift around their slots, bid the prices that they wanted to be paid for their slots, which they symbolically sold back to the FCC at this price. This helped the FCC know which slots would be open and set reserve prices, the price they must receive in order to make this redistribution work out evenly, so the FCC would not lose profit from this process. In the forwards auction they ran as a second price auction with multiple slots. The big difference between this aution and the one that we discussed in lecture is that instead of generating any set of VCG prices, the VCG prices had to be higher than the reserve prices set by the backwards auction. As we discussed in class for a simple second price auction setting a reserve price is just like adding another bid, so this does not change the fundamentals of the second price auction. This means it is still a dominant strategy to bid true value, so the auction is simple for the bidders. Calculating the prices becomes a little more complicated, but still the same fundamental process. In class when we calculated the VCG prices we allowed for a 0 price for one of the slots, but realistically in the FCC auction if they bought back shares in the reverse auction for a non zero amount they would not want to sell them to a new bidder for a zero amount. As we showed on the homework there are multiple sets of market clearing prices (and we showed market clearing prices to be the same as the VCG prices) and so in this auction instead of using the first set of market clearing values, the FCC choose to use a set which were above the reserve price if possible. This auction is a creative way to reallocate resources and demonstrates how applicable the VCG method is in maintaining a simple auction where biding true value is dominant.
Source:
(Explanation of the auction in the introduction of the paper Secure Generalized Vickrey Auction Using Homomorphic Encryption):
ftp://nozdr.ru/biblio/kolxo3/Cs/CsLn/F/Financial%20Cryptography,%207%20conf.,%20FC%202003(LNCS2742,%20Springer,%202003)(ISBN%203540406638)(348s)_CsLn_.pdf#page=266
FCC auction page
http://wireless.fcc.gov/auctions/default.htm?job=auctions_home