Wireless Network Design: Optimization Models and Solution ...

7 Spectrum Auctions 173
some discussion on this topic, see Hoffman [28] for tools specific to the spectrum
auction setting, and Boutelier [7] and Elmaghraby and Keskinocak [22] for tools for
other applications. Also, Day and Raghavan [19] and Parkes [44] provide alternative
ways of bidders expressing preferences that preclude the bidder specifying specific
packages to the auctioneer.
In spectrum auctions, bidders usually think of valuing spectrum based on “MHz
Pop” calculations (i.e. the population within the region times the amount of spectrum).
A bidder-aide tool for this application might ask bidders to supply information
in terms of their business plans: What geographic areas are their primary,
secondary and tertiary markets? What is their minimum and maximum bandwidth
needs? Do they prefer certain bands? How much population do they need to have
a viable business? How much are they willing to spend per MHz population unit?
Are their exceptions for certain important regions? With this information, the tool
translates their needs into constraints for an optimization model that maximizes the
bidder’s profit, given the current purchase prices for the licenses of interest. Packages
are then provided back to the user for evaluation. The process continues with
the bidder having the ability to change his business plan, budget or detailed specifications
within a plan. The tool re-optimizes and creates new packages. Once the
bidder is satisfied with the outputs, he indicates the package or packages (depending
on the auction design) that are best, and these are supplied to the auctioneer.
Tools similar in nature are being used by the major supply-chain auction providers.
They must always be designed for the specific application and include all of the constraints
relevant to that business concern. However, with such tools, more entities are
willing to participate in the auction thereby improving the overall competitiveness
of the auction.
7.7 Conclusions
Auctions have proven quite successful in allocating spectrum. Auctions have brought
greater transparency to the overall process and have allowed the spectrum to be allocated
in a timely manner. Recently, auction theorists have been arguing for more
complicated auctions that allow the packaging of licenses. One reason for this new
interest is the ability of current software — based on sophisticated mathematical
algorithms developed over the past 20 years — to be able to solve very large combinatorial
optimization problems routinely. In addition, the game theorists and the experimental
economists have highlighted issues with prior designs and provided new
mechanisms that have nice theoretical properties. Because of the need for sophisticated
allocation mechanisms, computer scientists, operations research analysts, experimental
economists and game theorists are working together to determine new
approaches for the allocation of these resources.
As broadband applications multiply, the wireless telecommunications industry
clamors for more spectrum to satisfy the seemingly insatiable appetite for applications
that require more and more bandwidth. Research into new auction designs, new