Joho the Blogdoj Archives - Joho the Blog

January 5, 2010

Department of Justice on a weakness of auctions. Susan Crawford comments.

The Department of Justice has filed comments on the FCC’s broadband plans. Susan Crawford, ex of the White House, blogs her reaction. For me, the most interesting of Susan’s comments is:

Re-allocation of spectrum makes sense. But the “foreclosure value” to market-powerful incumbents of buying that spectrum – and keeping their competitors from buying it – may exceed its market value. So DOJ very gently (with lots of caveats) suggests that the highest value use for new spectrum may actually be to make it available for license by new rivals.

This refers to this in the DoJ comments:

The goal in assigning licenses to any such new spectrum designated for commercial services should be to ensure that it generates the greatest ultimate benefits to the consumers of those services. When market power is not an issue, the best way to pursue this goal in allocating new resources is typically to auction them off, on the theory that the highest bidder, i.e., the one with the highest private value, will also generate the greatest benefits to consumers. But that approach can go wrong in the presence of strong wireline or wireless incumbents, since the private value for incumbents in a given locale includes not only the revenue from use of the spectrum but also any benefits gained by preventing rivals from eroding the incumbents’ existing businesses. The latter might be called “foreclosure value” as distinct from “use value.” The total private value of spectrum to any given provider is the sum of these two types of value. However, the “foreclosure value” does not reflect consumer value; to the contrary, it represents the private value of forestalling entry that threatens to inject additional competition into the market.

This is one of the places where pure market forces (whatever that means since we’re already talking about a highly constrained and artificial auction) can work against the social values we’re trying to achieve. I hope the Omnibus Broadband Initiative folks receive the DoJ’s gentle hint as if it were delivered with a 2×4.

[Self-serving:] (I have been posting interviews wit the Broadband Initiative folks at Broadband Strategy Week.