Computational Analysis of an Auction for Licensed and Unlicensed Use of Spectrum

This paper employs simulation methods to evaluate the ability of three different auction mechanisms to determine an efficient license regime for radio spectrum as well as the efficient ownership of the associated rights. The two regimes explored are "licensed" spectrum, in which a winning bidder maintains exclusive rights to use the spectrum, subject only to technical restrictions, and "non-licensed" spectrum, in which multiple users are able to share spectrum on an open access basis. For each auction, we examine bidder incentives and provide detailed reports on both auction revenue and bidder surplus in a set of Nash equilibrium outcomes. Results are consistent with the preliminary conclusions of Bykowsky et al. (2008), that a market can be used to allocate spectrum between licensed and unlicensed use. When there is a clear market preference for either licensed or unlicensed use, all three auction mechanisms arrive at efficient outcomes. However, in the absence of such a preference, a first-price auction appears to be the preferred mechanism.