Incentive auction analysis
In a report filed with the Federal Communications Commission, Duke University Professor, Bates White Partner, and former FCC Chief Economist Leslie Marx states that proposals to restrict Verizon’s and AT&T’s participation in the upcoming Incentive Auction would “put at risk its twin priorities of raising significant revenue and reallocating a substantial amount of spectrum from broadcast to mobile wireless services.” Dr. Marx’s analysis provides evidence that the FCC could not impose significant bidding restrictions without materially reducing auction revenues and risking outright auction failure.
The filing, written on behalf of Verizon, addresses proposed rules for the FCC’s upcoming Incentive Auction for wireless spectrum. Under these proposals, rules would limit Verizon’s and AT&T’s ability to bid for spectrum.
In her analysis, Dr. Marx concludes that despite the claim that auction restrictions might increase revenue by ensuring that smaller firms are not discouraged from participating, proponents of that theory do not offer empirical support for these claims. By using data on past spectrum auctions to quantify the revenue loss from excluding Verizon and AT&T, or from limiting their participation, Dr. Marx demonstrates that bidding restrictions in past FCC auctions would have substantially reduced revenue: 45% lower in the recent 700 MHz auction and 16% lower in the AWS 1 auction. In addition, Dr. Marx simulates the effects of restricting bidder participation in the Incentive Auction by using a theoretical model of a two-sided auction. These results show that bidding restrictions in a two-sided mechanism can cause the revenue and the license transfer goals of the incentive auction to be unattainable. Dr. Marx also discusses theoretical and empirical evidence contradicting assertions that there is a risk of foreclosure if all bidders are permitted to participate fully in the Incentive Auction. She presents evidence that, despite complaints to the contrary, Verizon and AT&T lack the incentive and ability to implement a foreclosure strategy.
References
Economic analysis of proposals that would restrict participation in the Incentive Auction by Dr. Leslie M. Marx, PhD.