Simultaneous Multiple-Round (SMR) Auctions
In a simultaneous multiple-round (SMR) auction, all licenses are available for bidding throughout the entire auction, thus the term "simultaneous." Unlike most auctions in which bidding is continuous, SMR auctions have discrete, successive rounds, with the length of each round announced in advance by the Commission.
After each round closes, round results are processed and made public. Only then do bidders learn about the bids placed by other bidders. This provides information about the value of the licenses to all bidders and increases the likelihood that the licenses will be assigned to the bidders who value them the most. The period between auction rounds also allows bidders to take stock of, and perhaps adjust, their bidding strategies.
In an SMR auction, there is no preset number of rounds. Bidding continues, round after round, until a round occurs in which all bidder activity ceases. That round becomes the closing round of the auction.
The Commission's SMR auction design can be modified to allow combinatorial or "package" bidding. With package bidding, bidders may place bids on groups of licenses as well as on individual licenses. This approach allows bidders to better express the value of any synergies (benefits from combining complementary items) that may exist among licenses and to avoid the risk of winning only part of a desired set.
In general, package bidding is appropriate when there are strong complementaries among licenses for some bidders and the pattern of those complementaries varies among bidders. Under these circumstances, package bidding yields an efficient outcome, ensuring that licenses are sold to those bidders who value them the most.
Package bidding procedures are also designed to allow the auction to proceed at an appropriate pace, to encourage straightforward bidding, and to permit bidders to employ flexible backup strategies.
Wednesday, August 9, 2006