Economics and computer science of a radio spectrum reallocation

Abstract

The recent "incentive auction" of the US Federal Communications Commission was the first auction to reallocate radio frequencies between two different kinds of uses: from broadcast television to wireless Internet access. The design challenge was not just to choose market rules to govern a fixed set of potential trades but also, to determine the broadcasters' property rights, the goods to be exchanged, the quantities to be traded, the computational procedures, and even some of the performance objectives. An essential and unusual challenge was to make the auction simple enough for human participants while still ensuring that the computations would be tractable and capable of delivering nearly efficient outcomes.algorithmic mechanism design | auction theory | incentive auction | market design | dominant strategies Investments in wireless Internet infrastructure are important for US economic growth but have recently been limited by shortages of usable frequencies. With customer reliance on real-time, over the air broadcast television declining steeply, a partial solution is to reassign some television broadcast frequencies. What is the best way to do that? Can a reassignment be reconciled with the license rights of station owners? Dealing with these questions has raised new challenges and brought together researchers in economics and computer science to devise and build an innovative market-based solution.One approach would be to ask the Federal Communications Commission (FCC) to try to compute and implement the optimal reassignment. It would need to decide how many television channels to reallocate to wireless, which stations should stop broadcasting (or be "cleared") to permit this reallocation to occur, which channels to assign to continuing broadcasters, and how to allocate the cleared spectrum among wireless infrastructure companies. In addition, it would need to determine payments: how much compensation to pay to broadcasters for relinquishing their licenses and how much to charge buyers for the new wireless broadband licenses. To carry out these tasks, the agency would need to gather information from television broadcasters, wireless companies, and other affected parties (radio astronomers, users of wireless microphones, etc.), each of whom might make self-serving claims to manipulate the outcome to its advantage. For example, broadcasters could exaggerate the value of broadcast spectrum to promote higher prices, whereas other affected parties might belittle broadcaster values to keep prices low.Given the considerable informational challenges in such planning, it is useful to explore alternatives. Hayek (1) claimed that the beauty of a well-functioning market is that participants, acting only in their own interests and using only their own information, can coordinate effectively and voluntarily to achieve a good aggregate outcome. Classical economic theory develops this idea, assuming that the market is populated by small buyers and sellers, that goods are homogeneous, that buyers and sellers find one another...

Designing combinatorial exchanges for the reallocation of resource rights

“…Besides matching institutions without monetary transfers, market design has influenced the design of one-sided combinatorial marketsalso known as combinatorial auctions. Such auctions are used in a variety of applications, including logistics and industrial procurement markets (11) and the sales of highly valuable spectra for wireless and mobile-phone applications (12,13). There exists a significant body of research on combinatorial auctions (14), including those that use linear prices (15)(16)(17).…”

Mobile Investment and Traffic Per Capita Tend to Increase with License Duration

“…In this perspective, lowering the duration of the licenses may allow new entry more frequently and should reduce incumbents market power. Leyton-Brown et al (2017). There is thus a trade-off in the duration of the licenses between allocating radio spectrum to most efficient operators who will make better use of it and the resulting market power.…”

An Invitation to Market Design

“…Working with the US Federal Communications Commission (FCC), a team of economists and computer scientists developed a two-sided spectrum auction that became known as the "Incentive Auction" (Leyton-Brown et al, 2017;Milgrom, 2017;Milgrom and Segal, 2017).…”