the cca from a bidder’s perspective - peter cramton - power auctions
DESCRIPTION
Presentation by Professor Peter Cramton of Power Auctions to the January 2012 digital dividend stakeholder workshopsTRANSCRIPT
The Combinatorial Clock Auction from a bidder’s perspective
Peter Cramton13 January 2012
2
The setting
• Each carrier needs spectrum to provide 4G LTE service• Desired attributes of service
Coverage Capacity Speed
• 700 MHz: 9 lots of 2x5 MHz Ideal for coverage
• 2.5 GHz: 7 lots of 2x10 MHz in each region Ideal for capacity
• Each carrier desires contiguous spectrum Larger contiguous blocks (up to 2x20 MHz) enable greater speed
• Specific frequencies within band are of secondary importance
The goal
• Acquire profit maximizing spectrum package Preferred quantity of 700 MHz and 2.5 GHz spectrum recognizing
benefits and costs of additional spectrum Benefits: lower buildout cost; improved coverage, capacity and speed Costs: higher spectrum expense
3
Valuation model
• Determines value of alternative spectrum packages recognizing Minimum requirements Incremental value from additional lots of 700 MHz or 2.5 GHz
4
700 MHz lots(2x5 MHz)
2.5 GHz lots(2x10 MHz) Coverage Capacity Speed Value
3 3 +++ +++ ++ $$$$$$
2 2 ++ ++ ++ $$$$$
2 1 ++ + + $$$$
1 2 + ++ ++ $$$
1 1 + + + $$
0 2 ++ ++ $
Bidding tool
• Includes valuation model and adds auction state Prices Activity
• Supports bidder decision making throughout allocation stage• Helps translate valuation model into bidding strategy
5
700 MHz lots(2x5 MHz)
2.5 GHz lots(2x10 MHz) Coverage Capacity Speed Value Cost Profit
3 3 +++ +++ ++ $$$$$$ $$$$$ $$
2 2 ++ ++ ++ $$$$$ $$$ $$$
2 1 ++ + + $$$$ $$ $
1 2 + ++ ++ $$$ $ $$
1 1 + + + $$ $ $
0 2 ++ ++ $ $ $
Key features of CCA
• Enhances substitution Use of generic lots (all lots in same category are perfect substitutes) Bid quantity of contiguous spectrum in 700 MHz and 2.5 GHz bands
• Encourages price discovery Simple price process in clock stage Helps bidder focus valuation effort on most relevant packages
• Induces truthful bidding Pricing rule to encourage bidding based on intrinsic valuations Activity rule to encourage truthful bidding throughout the auction
6
CCA simplifies bidding relative to SMRA
• Complex gaming strategies are avoided as a result of Anonymous bidding Generic lots Package bids (no exposure) Effective pricing and activity rules
• Bidding on most profitable package throughout the auction is an effective strategy
• Bidder can focus on valuing relevant packages, not complex bidding strategy
7
Mechanics of bidding
Lot Configuration for purposes of example*** Not intended to be preferred configuration ***700 MHz:Nationwide …
Lower:1 Lot2 Categories: Upper: 8 Lots
(Paired)
(5 MHz blocks)703 748 758 803
2.5 GHz:Regional ACT
NSWNTQLDSATASVICWA
1 Category: 7 Lots
(10 MHz blocks)
…
2500 2570 2620 2690
(Paired)
Auction Information*** Spectrum caps are just examples ***
10
Auction Process
Round opens
Bidders place bids
Round closesDo any products
have excess demand?
yes
Results from previous round are published
Prices for next round
announced
noSupplementary
Round
End of Clock
RoundsAssignment
Stage
Clock Rounds
Allocation Stage
11
Auction Schedule for Clock Rounds
12
Price
Aggregate DemandSupply
Round 2
P2
Closing Price
Clock stage
Round 1
P1
P5Round 5
Round 4P4
Round 3P3
13
Auction Process – Bidding in a Clock Round
Round opens
Bidders place bids
Round closesDo any products
have excess demand?
yes
Results from previous round are published
Prices for next round
announced
noSupplementary
Round
End of Clock
RoundsAssignment
Stage
Clock Rounds
Allocation Stage
14
Bidding in Round 1 – Specifying Number of Lots
15
Bidding in Round 1 – Package Bid Saved
16
Auction Process – Viewing Results
Round opens
Bidders place bids
Round closesDo any products
have excess demand?
yes
Results from previous round are published
Prices for next round
announced
noSupplementary
Round
End of Clock
RoundsAssignment
Stage
Clock Rounds
Allocation Stage
17
Viewing the Results of Round 1 and Round 2 Prices
18
Specifying a New Package in Round 2
19
Immediate Feedback if your Bid is Invalid
20
A Summary of all Clock Packages Placed
211 . | . . 1 . 2 . 1 2
700 MHz | 2.5 GHz
upper lower | ACT NSW NT QLD SA TAS VIC WA
Package abbreviation format:
Auction Process – Supplementary Round
Round opens
Bidders place bids
Round closesDo any products
have excess demand?
yes
Results from previous round are published
Prices for next round
announced
noSupplementary
Round
End of Clock
RoundsAssignment
Stage
Clock Rounds
Allocation Stage
22
Bidding in the Supplementary Round:Initial Set of Bids from Clock Rounds
23
Bidding in the Supplementary Round:Improving bids placed in the Clock Rounds
24
Bidding in the Supplementary Round:Adding further Packages using upload facility
25
Auction Process – Assignment Stage
Round opens
Bidders place bids
Round closesDo any products
have excess demand?
yes
Results from previous round are published
Prices for next round
announced
noSupplementary
Round
End of Clock
RoundsAssignment
Stage
Clock Rounds
Allocation Stage
26
Bidding in the Assignment Round:Initial Prices for all Frequency Options are Zero
27
Bidding in the Assignment Stage:Specifying a Price for a Particular Frequency Range
28
Bidding in the Assignment Stage:Reviewing Bids Placed for all Frequency Options
29
30
Final Results Screen