Auctioning the Digital Dividend: a Model for Spectrum

This paper models a spectrum auction as a multi-unit auction where participantsuse the goods purchased to participate in a constrained multi-good downstream market. We use dynamic programming techniques to solve for the optimal bidding strategy for firms in a clock auction. Firms often value constraining competitor market power highly and inefficient firms will often bid aggressively to minimise competition. Regulators concerned with revenue maximisation have strong incentives to encourage this behaviour capping more efficient firms or capping entrants to the market. In contrast social welfare concerns suggest that allocating spectrum may be more efficient than using an auction.