The role of bidding agreements in the US radio frequency auctions

In the US spectrum auctions which allocate radio frequency rights to the private sector, firms are allowed to form multilateral bidding agreements. These agreements explicitly allow bidders to discuss their strategies and bids. Using public auction- and firm-level data from the Federal Communications Commission, I empirically investigate whether the bidding agreement rule leads to differential auction outcomes for firms that are members of such agreements, versus other firms. I find that firms which are member of a bidding agreement, bid more aggressively and pay up to 43% higher prices than firms who have no such agreements. Moreover, results of further empirical tests do not support the hypothesis that bidding agreements result in anti-competitive behavior. In contrast, I find suggestive evidence in favor of a resource pooling argument. Consequently, the regulator’s rule of permitting bidding agreements appears to be justified on economic grounds, and should be reinstated in future frequency auctions. My result corroborates findings of earlier empirical studies on joint bidding, conducted in other types of auctions