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The Outlook for Auctions

The Outlook for Auctions

From 1994 to 2008, spectrum was sold almost exclusively using the simultaneous multiple round auction (SMRA). It is based on simple rules which make it easy to explain and implement, yet they create considerable strategic complexity. Since items have to be won one-by-one, bidders who compete aggressively for combinations of items risk paying too much if they ultimately win an inferior subset. This “exposure risk” suppresses bidding with adverse consequences for the auction’s efficiency and revenue.

Since 2008, regulators worldwide have adopted the combinatorial clock auction (CCA) to avoid exposure problems. The CCA is based on very complex rules, but the premise was that bidding would be straightforward, i.e. bids would truthfully reflect valuations. Unfortunately, it is now well known that the CCA admits many other behaviours, including demand reduction, demand expansion, and predatory bidding. In particular, the CCA’s supplementary stage may provide bidders with an opportunity to raise rivals’ costs, which has led to some hard-to-defend outcomes.

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