Wireless Network Design: Optimization Models and Solution ...

148 Karla Hoffman
age of the population or a certain physical area. Spectrum is considered a national
resource and is therefore allocated with concepts of social welfare in mind.
This chapter begins by first outlining some auction terms that will be used
throughout the chapter. It then describes some alternative methods for spectrum
allocation other than auctions and outlines the reasons for the conversion from administrative
procedures to auctions. We describe in detail the most commonly used
auction design - the simultaneous ascending auction (SAA) design and show how
specific rules have been altered to improve its performance. Next we detail some
of the newer designs that allow bidders to package licenses together and indicate
a value for the “all or nothing” package. These designs remove the risk that bidders
might win only part of what they need and pay too much for the resulting
sub-package. We detail where these designs have been used and highlight their successes
and shortcomings.
7.2 Some Auction Terms and Mechanisms
We begin with a very short discussion of auction design alternatives. Here we will
present the terms for one-sided auctions since there have been no standardized spectrum
exchanges (i.e. formal mechanisms for the trading of spectrum among license
holders). We will also restrict our attention to the case where there is a single seller
and multiple buyers, since that is the case where regulators are seeking to allocate
licenses for spectrum for use by telecommunications companies. We will also assume
that there are multiple items being sold and that, for at least some of the buyers,
a collection of items are needed in order to have a viable business plan — they
need to either aggregate licenses in order to either acquire sufficient bandwidth to
offer specific services or acquire a sufficient geographic footprint. Acquiring spectrum
licenses in multiple regions avoids roaming charges and allows economies of
scale in terms of the build-out and marketing costs. Increases in bandwidth can increase
the types of offerings carriers can provide. Thus, this chapter will highlight
both multiple-item and package-bidding auction mechanisms that allow buyers to
procure collections of the items that are being sold. These designs should be sufficiently
general to allow bidders to express a value on a package where the collection
of items may have a value greater than the individual items (i.e. the goods are complements),
as well as on a package where a buyer can express a quantity discount
for buying more of the good (i.e. the goods are substitutes).
Why does a government sell or lease valuable resources via an auction mechanism?
Often the government moves to a market-clearing framework after many
failed attempts at administrative negotiation with the entities that desire the use of
the resources. The results of these negotiations are fraught with administrative costs
and the likelihood that the items will be awarded to those that have the greatest political
access rather than those that value the items the most. In many such instances,
the government has no mechanism to assess the true value of the assets being leased
and the public or its representatives perceive that the government is not receiving