Allocating Spectrum through the Use of Auctions

This article provides an overview of auctions and proposes a bidding format for use in a potential spectrum auction. An auction is a mechanism designed to recreate the competitive market when competition is hindered by a limited number of participants or a lack of pricing information. Although supporters of spectrum auctions frequently point to the potential revenue generation from a sale of spectrum, most economists support auctions because, if implemented in accordance with economic theory, they enhance economic efficiency. The author proposes a sealed second-bid format for use in any potential spectrum auction. This format protects against collusion through the use of sealed bids, and reduces the costs associated with bidding because knowledge of a competitor\u27s valuation of the goods is not necessary. The author also recommends that a reserve price be set for spectrum that would compensate existing users to move to other portions of the spectrum and increase Treasury revenue