Incentive Auction Design Alternatives: A Simulation Study

Abstract

Over 13 months in 2016-17 the US Federal Communications Commission (FCC) conducted an "incentive auction" to repurpose radio spectrum from broadcast television to wireless internet. The result of the auction was to remove 14 UHF-TV channels from broadcast use, sell 70 MHz of wireless internet licenses for $19.8 billion, and create 14 MHz of spectrum for unlicensed uses. With fewer UHF channels remaining for TV broadcast, the TV spectrum was also reorganized. Each station was either "repacked" in the leftover channels or voluntarily sold its broadcast rights, either going off the air or switching to a different band. The volunteers received a total of $10.05 billion to yield or exchange their rights and make repacking possible. This paper uses a computational lens to revisit part of the incentive auction design: the descending clock "reverse" auction used to procure broadcast rights. We investigated the quantitative significance of various aspects of the design by running extensive simulations, leveraging a reverse auction simulator and realistic models of bidder values. Because the incentive auction design was both novel and extremely complex [1], it was not possible to thoroughly consider every potential design variation before the auction was run. Our goal is to understand how well the auction design performed after the fact, particularly asking which elements of the design were most important and which variations of the design might have led to even better outcomes.