Business Commons^™

Collusive Bidding In The Fcc Spectrum Auctions, Peter Cramton, Jesse Schwartz

Jesse A. Schwartz

This paper describes the bid signaling that occurred in many of the FCC spectrum auctions. Bidders in these auctions bid on numerous spectrum licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to raise the bid on any license. Simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This “code bidding” occurs when one bidder tags the last few digits of its bid with the market number of a related license. We examine how extensively bidders signaled each other with retaliating bids …

Improving Bid Efficiency For Humanitarian Food Aid Procurement, Aniruddha Bagchi, Jomon Aliyas Paul, Michael J. Maloni

Jomon A. Paul

The competitive bid process used by the US Department of Agriculture (USDA) to procure food supplies and transportation services for humanitarian food aid is subject to bidder gaming that can increase prices and deter competition. Additionally, suppliers and carriers are matched after bid submission, preventing synergies from coordinated planning. Given these concerns, we determine the optimal auction mechanism to minimize gaming then justify pre-bid planning between suppliers and carriers using properties of the cost distribution functions. We operationalize these changes with a uniform price auction. The improved mechanism should deter gaming, enhance bid participation, and increase delivered food aid volumes.

Using Spectrum Auctions To Enhance Competition In Wireless Services, Peter Cramton, Evan Kwerel, Gregory Rosston, Andrzej Skrzypacz1

Peter Cramton

Spectrum auctions are used by governments to assign and price licenses for wireless communications. Effective auction design recognizes the importance of competition, not only in the auction, but in the downstream market for wireless communications. This paper examines several instruments regulators can use to enhance competition and thereby improve market outcomes.

Virtual Power Plant Auctions, Peter Cramton, Lawrence Ausubel

Peter Cramton

Since their advent in 2001, virtual power plant (VPP) auctions have been implemented widely. In this paper, we describe the simultaneous ascending-clock auction format that has been used for virtually all VPP auctions to date, elaborating on other design choices that most VPP auctions have had in common as well as discussing a few aspects that have varied significantly among VPP auctions. We then evaluate the various objectives of regulators in requiring VPP auctions, concluding that the auctions have been effective devices for facilitating new entry into electricity markets and for developing wholesale power markets.

A Two-Sided Auction For Legacy Loans, Peter Cramton

Peter Cramton

On Monday, 23 March 2009, Treasury Secretary Geithner presented the Public-Private Investment Program as a key instrument to resolve the financial crisis (www.financialstability.gov). The Treasury’s description still leaves many issues unanswered. We flesh out the auction design for legacy loans. A two-sided auction is required. Both banks and private investors must compete in a transparent and competitive process.

Foreword To Ross Baldick's 'Single Clearing Price In Electricity Markets', Peter Cramton

Peter Cramton

Argues that consumers and suppliers are better off with the clearing-price auction in electricity markets.

How Best To Auction Natural Resources, Peter Cramton

Peter Cramton

I study the design of auctions of natural resources, such as oil or mineral rights. A good auction design promotes both an efficient assignment of rights and competitive revenues for the seller. The structure of bidder preferences and the degree of competition are key factors in determining the best design. With weak competition and additive values, a simultaneous first-price sealed-bid auction may suffice. With more complex value structures, a dynamic auction with package bids, such as the clock-proxy auction, likely is needed to promote the efficiency and revenue objectives. Bidding on production shares, rather than bonuses, typically increases government take …

Auctioning The Digital Dividend, Peter Cramton

Peter Cramton

I begin by describing some of the problems of the simultaneous ascending auction. Then I present the package clock auction, which retains the benefits, while addressing the weaknesses, of the simultaneous ascending auction. I emphasize two essential elements of the package clock auction: the pricing rule and the activity rule. Along the way, I summarize both experimental and field results with the package clock auction.

Report On Key Design Elements Of Auctions Under Australia's Carbon Pollution Reduction Scheme, Peter Cramton

Peter Cramton

No abstract provided.

Auctions For Injecting Bank Capital (Addendum To 'A Troubled Asset Reverse Auction'), Peter Cramton, Lawrence M. Ausubel

Peter Cramton

Public discussion has turned, in the past few days, toward using some of the $700 billion in rescue funds for the injection of government money into banks in return for ownership stakes. The purpose of this short note, an addendum to “A Troubled Asset Reverse Auction,” is to describe an auction mechanism suitable for injections of capital into banks. The auctions would price the equity purchases through a competitive process.

Auctioning Long-Term Gas Contracts In Colombia, Peter Cramton

Peter Cramton

This paper presents an approach to auctioning long-term gas contracts in Colombia. I propose an annual auction for long-term firm gas contracts. The auction would assign and price all firm gas contracts, with the exception of gas from the Guajira field, which is assigned administratively at a regulated price. The proposal is a partial market design in that it does not address the transportation of gas from producer to consumer.

The goal of the approach is to improve the transparency and efficiency of the gas market with a coordinated auction for long-term gas contracts. Currently, gas contracts are sold in …

A Review Of The L-Band Auction, Peter Cramton

Peter Cramton

In May 2008, Ofcom’s L-band auction concluded. This was Ofcom’s second combinatorial clock auction. The auction used an innovative format intended to encourage an efficient assignment of the 17 lots. Eight bidders competed for the lots. In sharp contrast to the first combinatorial clock auction, the 10-40 GHz auction, in which each of the ten bidders won spectrum, in the L-band auction there was a single winner—Qualcomm won all the lots. This note briefly reviews the auction.

A Troubled Asset Reverse Auction, Peter Cramton, Lawrence M. Ausubel

Peter Cramton

The US Treasury has proposed purchasing $700 billion of troubled assets to restore liquidity and solve the current financial crisis, using market mechanisms such as reverse auctions where appropriate. This paper presents a high-level design for a troubled asset reverse auction and discusses the auction design issues. We assume that the key objectives of the auction are to: 1) provide a quick and effective means to purchase troubled assets and increase liquidity; 2) protect the taxpayer by yielding a price for assets related to their value; and 3) offer a transparent rules-based process that minimizes discretion and favoritism. We propose …

The Quadratic Core-Selecting Payment Rule For Combinatorial Auctions, Peter Cramton, Robert Day

Peter Cramton

We report on the use of a quadratic programming technique in recent and upcoming spectrum auctions in Europe, and proposed for use in the FAA’s landing-slot auctions in the United States. Specifically, we compute a unique point “in the core” that minimizes the sum of squared deviations from the Vickrey-Clarke-Groves payments. Analyzing the Karush-Kuhn-Tucker conditions, we demonstrate that the resulting payments can be decomposed into a series of economically meaningful and equitable penalties, adding to the perceived “fairness” of this payment rule. Further, we discuss the many benefits of this combinatorial auction paradigm.

A Review Of The 10-40 Ghz Auction, Peter Cramton

Peter Cramton

In February 2008, Ofcom’s 10-40 GHz auction concluded. This was Ofcom’s first combinatorial clock auction. The auction used an innovative format intended to encourage an efficient assignment of the 27 lots. Each of the ten bidders won one or more lots. All 27 lots were assigned. This note briefly reviews the auction.

Market Design: Auctions And Matching, Peter Cramton

Peter Cramton

No abstract provided.

Innovation And Market Design, Peter Cramton

Peter Cramton

Market design plays an essential role in promoting innovation. I examine emission allowance auctions, airport slot auctions, spectrum auctions, and electricity markets, and demonstrate how the market design can encourage innovation. Improved pricing information is one source of innovation. Enhancing competition is another driver of innovation seen in all of the applications. Market design fosters innovation in other ways as well by addressing other potential market failures.

Forward Reliability Markets: Less Risk, Less Market Power, More Efficiency, Peter Cramton, Steven Stoft

Peter Cramton

A forward reliability market is presented. The market coordinates new entry through the forward procurement of reliability options—physical capacity bundled with a financial option to supply energy above a strike price. The market assures adequate generating resources and prices capacity from the bids of competitive new entry in an annual auction. Efficient performance incentives are maintained from a load-following obligation to supply energy above the strike price. The capacity payment fully hedges load from high spot prices, and reduces supplier risk as well. Market power is reduced in the spot market, since suppliers enter the spot market with a nearly …

The Effect Of Incumbent Bidding In Set-Aside Auctions: An Analysis Of Prices In The Closed And Open Segments Of Fcc Auction 35, Peter Cramton, Allan T. Ingraham, Hal J. Singer

Peter Cramton

This paper examines the impact of an incumbent carrier’s participation in two simultaneously conducted auctions: one set-aside for non-incumbents and one open to all carriers. This paper estimates the extent to which prices in the closed auction were inflated by the participation of incumbents. This paper also estimates what prices would have been in the open auction had incumbents been excluded from bidding in the closed. It is found that an incumbent’s participation in the closed auction through a front, Alaska Native, enabled it to win more licenses at lower prices in FCC Auction 35. In contrast, non-incumbents won fewer …

An Overview Of Combinatorial Auctions, Peter Cramton, Yoav Shoham, Richard Steinberg

Peter Cramton

No abstract provided.

Comments On The Rggi Market Design, Peter Cramton

Peter Cramton

No abstract provided.

The 700 Mhz Spectrum Auction: An Opportunity To Protect Competition In A Consolidating Industry, Peter Cramton, Andrzej Skrzypacz, Robert Wilson

Peter Cramton

This paper is provided in connection with the 2007 Telecommunications Symposium – Voice, Video and Broadband: The Changing Competitive Landscape and Its Impact on Consumers, sponsored by the Antitrust Division of the U.S. Department of Justice (“the Division”). Our focus is on the state of competition in the wireless sector. Maintaining a competitive wireless sector is particularly critical if, as the Division’s agenda indicates, wireless services are to function as a competitive alternative to wireline technologies. Strengthening competition is especially important now after recent mergers that consolidated the wireless industry into a few dominant firms (two to four depending on …

Comments On The Fcc’S Proposed Competitive Bidding Procedures For Auction 73, Peter Cramton, Gregory Rosston, Andrzej Skrzypacz, Robert Wilson

Peter Cramton

No abstract provided.

Possible Design For A Greenhouse Gas Emissions Trading System, Peter Cramton

Peter Cramton

No abstract provided.

Colombia’S Forward Energy Market, Peter Cramton

Peter Cramton

This paper presents a market design for Colombia’s forward energy market, which is scheduled to began in 2008. The forward energy market is an organized market to procure energy for electricity customers on a forward basis. It includes both the regulated market (residential and other small customers) and the nonregulated market (large customers). Currently, regulated customers represent 68% of the total electricity demand and nonregulated customers represent the remaining 32%. The proposed design is novel in that it integrates both the regulated and nonregulated customers into a single organized market. Although the regulated and nonregulated energy products remain distinct, their …

Affidavit Of Peter Cramton, Peter Cramton

Peter Cramton

Affidavit arguing that HQ manipulated the NYISO TCC and day-ahead energy markets. On behalf of DC Energy, LLC.

Economist Letter To Ntia On 700 Mhz Spectrum Auction, Peter Cramton, Andrzej Skrzypacz, Simon Wilkie, Robert Wilson

Peter Cramton

As the 700 MHz auction approaches, we are writing to clear up a common misconception about the nature of spectrum auctions and the impact of various rules on auction revenues.

Essential Entry: Revenues In The 700 Mhz Spectrum Auction, Peter Cramton

Peter Cramton

A common misconception is that an open access provision on a sliver of the 700 MHz spectrum would reduce auction revenues. In fact, the open access, wholesale, and bidding credit provisions put forth by Frontline Wireless, will motivate new entry, enhance competition in the auction, and raise revenues.

Revenues In The 700 Mhz Spectrum Auction, Peter Cramton, Andrzej Skrzypacz, Robert Wilson

Peter Cramton

There have been several comments that criticize auction rules that prevent the two major low-frequency incumbents from winning all of the newly available spectrum and incorporating it into their proprietary networks. Such rules include new-entrant set-asides, new-entrant bidding credits, and the open access plan. We disagree with these criticisms and argue that given the current market structure, such rules are likely to improve welfare and auction revenues. We are submitting this report to provide sound economic analysis of these claims.

Economic Comments On The Design Of The 700 Mhz Spectrum Auction, Peter Cramton, Andrzej Skrzypacz, Robert Wilson

Peter Cramton

We comment on the service and auction rules discussed in the Report and Order and Further Notice of Proposed Rule Making, FCC 07-72, 27 April 2007. We recommend that the FCC designate one license for a wholesale operation that provides open access nationwide on nondiscriminatory terms. This is necessary to enable entry of new businesses offering wireless services in retail markets. It also enables local operators to offer roaming at competitive prices. The new license accords with the Commission’s policy to encourage competition, and recognizes the benefits to consumers from low prices and expanded services.