Joho the Blog
An Entry from the Archives

I was confused about the anonymous bidding process chosen by the FCC as it auctions off our hope the 700mH spectrum. So, I asked Harold Feld, who kindly wrote back with the following explanation (used with permish, of course):

Anonymous bidding: Until now, the FCC has published at the end of each round who bid what for every license. This is called an "open" auction format. When the FCC created this format, it was thought that maximizing the information available to bidders would maximize efficiency of the auction and thus maximize revenue.

After more than ten years of FCC auctions, it has become obvious that the theory is completely, utterly and horribly wrong. What open bidding does is allow parties to signal each other and to target new entrants for attack. Through open bidding, the largest incumbents exclude new entrants and divide the licenses among themselves cheaply. The smaller players go along, because they survive by avoiding direct conflict with the bigger players and also like to exclude new entrants.

Under anonymous bidding, the FCC only provides the amount of the highest bid on each license at the end of the round. Thus, everyone can see what bid they must beat, but they do not know who has bid on the license. Nor can they see other bids besides the winning bids, which can be used for signaling. This makes it much more difficult for incumbents to rig the auction in their favor because they cannot coordinate attacks on new entrants and they cannot enjoy the benefits of a reputation for retaliation.

Greg Rose has done two important studies on anonymous bidding. The first was a ten year longitudinal study of FCC auctions for the Center for American Progress (with Mark Lloyd). The other was two studies on last summer's AWS auction for New America Foundation.

Here are links to the studies: Initial post on anonymous bidding
Post with link to CAP study
Post with links to AWS studies

Combinatorial bidding, which the FCC approved for the 6 REAG licenses in the "C" Block, is a way to minimize the "exposure risk" and encourage people to bid more aggressively. Here's the theory. Suppose I want to build a national footprint, but I'm afraid I won't win all the licenses necessary. I am therefore afraid to bid at all, because I may get stuck with licenses I don't want and have to sell them at a serious loss.

With combinatorial (or "package") bidding, I am only required to pay for the licenses if I win the entire package. If I don't win the whole package, all my winning bids are rendered null and void. So I can now bid agressively without fear and am encouraged to enter the auction and try for a national footprint.

The big potential new entrants, like Google and the DBS companies, wanted package bidding. So did AT&T and Verizon. We at PISC supported it because it encourages a national new entrant and doesn't make it that much easier for the incumbents, who are likely to win anyway.