Spectrum Collusion?

The Washington Post reports on an effort by Public Knowledge, Google, and others to change several parameters of the upcoming 700 MHz auction:

The groups called on the FCC to require that the winners of a chunk of the spectrum allow “open access” — sell access to competitors on a wholesale basis. The open access requirement would allow a nearly unlimited number of competitors to offer wireless broadband services, said Gigi Sohn, president of Public Knowledge.

The groups also want the FCC to conduct anonymous auctions — where bidders wouldn’t know whom they’re bidding against. In the past, large wireless carriers have used transparent auctions to drive up prices on chunks of spectrum being bid on by small competitors, said Gregory Rose, an econometrician and game theorist working with open access proponents. In many cases, many larger carriers then dropped their bids after the smaller carriers were eliminated, he said.

Some carriers have also engaged in retaliatory bidding against other companies that bid on spectrum they were interested in, he said. The retaliating bidder will bid on spectrum the second company is interested in, “as a signal to say, ‘back off on the license I want, or I will drive the price of the license you want through the roof,’” Rose said.

As I wrote last week, I’m skeptical about the FCC telling the auction winners what to do with the spectrum once they’ve purchased it. But requiring that the bids be anonymous strikes me as a sensible idea. As I understand it (and I haven’t looked into the relevant research in any detail), in a less-than-liquid market like this, the details of the auction rules matter quite a bit. We should all be able to support the idea that the auction rules should be carefully designed to minimize the potential for collusive behavior by bidders.

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