Saturday, February 21, 2015

Comments on the FCC incentive auction

Peter Cramton writes:

Dear Al,

Yesterday, I filed at the FCC some research that my team has been working on for some time. It is a good example of market design in action, combining economics, computer science, and operations research to design better markets. I am sending this to you because I thought that you may be interested and the market design community more broadly. I paste below the link and the abstract.

All the best,

“Design of the Reverse Auction in the FCC Incentive Auction” (with Hector Lopez, David Malec and Pacharasut Sujarittanonta), Working Paper, University of Maryland, 19 February 2015. [See also FCC Comment Public NoticeEOBC CommentKagan Comment]

We consider important design issues of the reverse auction, a key and innovative part of the FCC’s Incentive Auction. In the reverse auction, broadcasters compete to repurpose television broadcast spectrum for mobile broadband use. The Comment Public Notice (FCC 14-191) outlined the basic structure of the reverse auction. We take that basic structure as given and then examine critical elements of the design to maximize the FCC’s objectives of efficiency, simplicity, transparency, and fairness. Based on extensive simulation analysis of the FCC’s basic design, we identify important enhancements to the design that maintain its basic structure, yet improve the chance of a successful auction. This is accomplished by strengthening incentives for broadcaster participation and relying on competitive forces to determine auction clearing prices. Our analysis is based on a carefully-crafted reservation price model for broadcasters together with inevitable uncertainties of these reservation prices. In our simulations, we are able to clear 126 MHz of spectrum at a cost that is well within plausible revenues from the forward auction. This is accomplished with an improved scoring rule and replacing Dynamic Reserve Prices (DRP) with a much simpler Round Zero Reserve (RZR, pronounced “razor”) to promote objectives of transparency and simplicity. We also propose a much simplified method of setting the clearing target and an information policy that allows for important outcome discovery. Relative to the FCC’s proposal outlined in the Comment PN, our enhanced proposal is more robust, more efficient, simpler, more transparent, and fairer.

Here is the FCC's request for comments

Comment Sought on Competitive Bidding Procedures for Broadcast Incentive Auction 1000, Including 1001 and 1002

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