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Simultaneous Multiple-Round Auction

http://www.technologyreview.com/business/20457/

http://wireless.fcc.gov/auctions/default.htm?job=about_auctions&page=2

This article was written two years ago regarding an auction for communication network spectrum among Verizon, AT&T, and Google. This auction was held by Federal Communications Commission (FCC) to distribute network frequencies for airwaves, which were essential for wireless carriers businesses. The possession of a wider frequency spectrum would allow these companies to conduct a wider region of services (internet, TV and radio broadcast, cell phones) more efficiently and effectively.

FCC employs a simultaneous multiple-round (SMR) auction (see second link for original source) for companies or individuals that are eligible and willing to submit an application and payment. The simultaneous feature of this auction allows all spectrum frequency licenses to be available for bidding throughout the entire auction, with specific length of each round announced in advance by the Commission. Bidders submit bids for their desired licenses for each round, then the Commission will make known of all the valuations of each bidder for specific license. Bidders can then adjust their bidding strategies accordingly based on known valuations of other bidding companies on each license. The multi-round feature of the auction means there is no preset number of rounds, and the auction only ends when all bidding activity stops. That round then is the closing round of the auction.

The reallocation of money is very interesting in this type of auction. This situation can be in a way described by the bipartite graph matching. Each company has a valuation on a particular sector of network of interest. However, after knowing each other’s value on a particular license, bidders can reallocate their expense on their more favorable choice. Let’s say if Verizon wants sector 1, 2 and 3, AT&T wants sector 2, 3 and 4, and Google wants sector 4 and 5. Depending on the valuation, they can add a price column to modify their preference. So in the situation described above, AT&T may take its designated money for sector 2 and invest into sector 3 and 4 to ensure their maximum interest of service, while Verizon removed its designated money for sector 3 and invest into sector 2 to ensure they can obtain sector 1 and 2. Therefore, we can somewhat consider this auction as an open ascending price auction with multiple items being bid at the same time.

As the article said, Google “came away empty handed, but the company succeeded in pushing open-access conditions for the winning bids.” Basically, big companies such as Verizon and AT&T had to focus their funding into more specific area to ensure their dominance, or ‘power’, of a particular region of customers, which in a way allowed other smaller companies to pick up service area that was less populated and demanding but still indispensable. This type of auction became more open to other companies and individuals for development and competition. Companies can either secretly coerce each other and establish a different bidding strategy upon manipulating other people’s options.

In short, bidding strategies are hypothetical because bidders usually do not know each other’s valuation for each item in the auction, but this special type of auction creates a more open market and opportunity for higher quality service and allows companies to actually focus in each sector one at a time. The linkage of companies also allows ‘power’ dominance establishment in a network exchange experiment.

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