Google and the spectrum auction

I always wondered -as a person who has been working in the telecomms field for the past 11 years- how the firms developed their spectrum bidding strategies and how they implemented those. After all, these are billion-dollar games that have long and profound impacts in the firms as well as in the industry, and even in the economy of the country.

Spectrum auctions are sealed-bid long-run auctions where bidders -typically incumbent telecom operators- bid aggressively to get the spectrums that they need for their future infrastructures. FCC is the regulator of such lucrative auctions. FCC is incentivized by highe, successful bids and fair outcomes.

Recently, C-block auction resulted in a 8-week 20-billion dollar bidding process. FCC had a 4.6 billion dollar reservation price in this block. Before Google joined the bidding, no one knew why it was doing so. Google was actually planning to invest into the applications and handset business that would work on this spectrum block. As a result, Google needed big incumbents to invest heavily in this auction so that it can develop and sell handset and application products. In other words, Google played a billion-dollar chicken game, increasing its own bidding multiple times at points. Result: Google made sure that reservation price is reached, but it did not win. It was the outcome that Google desired. This strategic, well-played move was a big win for Google. Playing devil's advocate: What would happen if Google was the winner of the bidding process?In my opinion, they could either have dived into an industry that they are not very familiar with and failed eventually, or they could have sold the spectrum to another firm, potentially writing off some loss.

More details in the following article:

http://www.pcmag.com/article2/0,2817,2281382,00.asp

Auctions are moving online

The followiing recent article by The Economist blew my mind once again. The fact that you are opening your specific piece of art to thousands of bidders at the same time all around the world has profound economic impacts on the auctioneer side as well as on the bidder side. Major auction firms are evaluating the profitability of this option against other concerns such as brand management and psychology of the bidders. It seems like some of them already chose to go online.

Article shows that online auctioning proved to be profitable for Christie's within 1 year. Christie's is probably charging an admission fee for online bidders. In addition, it is selling the items to higher prices because of the differences in the reservation prices of bidders globally. Say, a painting might have a reservation price of ten thousand dollars to a bidder in Russia while it might be only five thousand dollars for a bidder in the United States.

Other important factor is the psychology of bidders in the bidder room. In-room bidders may have a better idea of where the auction is heading and when it might end because of their physical presence in the room.

http://www.economist.com/specialreports/displaystory.cfm?story_id=14941237