Creation of the Spectrum Auction
The theory behind auctions is truly fascinating. The thought that must be put into designing them and the strategy behind participating in the auction is a lot more complicated than what it appears to be at the surface. In 1993, Bill Clinton signed a law which granted the government to license away spectrum licenses, certain radio frequencies that can be used for communication. The purpose of the law was to promote efficient use of the spectrum and rapidly deploy new technologies. After months were spent on crafting the law, the hardest part of the process was designing the auction.
The government went to great lengths to perfect its auction process. They hired consultants and renowned economist to craft the auction. The most fundamental choice was to decide between an ascending style of auction or sealed bids. Most governments have chosen to use sealed bids in the past because those have generally been harder to rig. History has shown that a member of the conspiracy can submit bids secretly. However, sealed bids also open the doors for government officials to report on others’ bids. However, because the auctions were new to the government and potential bidders, the government cared a lot about possible behaviors exhibited throughout the course of the auction. They wanted the auction to be as equal as possible to all parties involved. Ascending bids generally have higher revenues for the government. Additionally, ascending auctions have the virtue of reducing regret. Bidders can raise their value if necessary and need not “leave money on the table.” In an ascending auction, actual competition, rather than an expectation, forces bids to much higher level which indirectly reduces regret. Although, the weight of economic literature generally favored ascending auctions, past government actions in the United States, specifically regarding the Department of the Interior, showed success with the sealed-bid auctions.
In 1995, the auction was held as an ascending bid auction. However, the auction has changed drastically over time. This year there will be another auction held by the government to give away more wavelengths in the format of a reverse (descending) auction
http://vita.mcafee.cc/PDF/GreatestAuctionHistory.pdf