The Combinatorial Clock Auction  from a bidder’s perspective           Peter Cramton          13 January 2012
The setting • Each carrier needs spectrum to provide 4G LTE service • Desired attributes of service     Coverage     Cap...
The goal • Acquire profit maximizing spectrum package     Preferred quantity of 700 MHz and 2.5 GHz spectrum recognizing ...
Valuation model     700 MHz lots   2.5 GHz lots      (2x5 MHz)     (2x10 MHz) Coverage Capacity   Speed      Value        ...
Bidding tool700 MHz lots   2.5 GHz lots (2x5 MHz)     (2x10 MHz)     Coverage Capacity   Speed   Value    Cost    Profit  ...
Key features of CCA • Enhances substitution     Use of generic lots (all lots in same category are perfect substitutes)  ...
CCA simplifies bidding relative to SMRA • Complex gaming strategies are avoided as a result of     Anonymous bidding    ...
Mechanics of bidding
Lot Configuration for purposes of example*** Not intended to be preferred configuration ***700 MHz:        703            ...
Auction Information*** Spectrum caps are just examples ***                                          10
Auction Process                                             Allocation Stage                  Round                  opens...
Auction Schedule for Clock Rounds                                    12
Clock stage                  Price  Closing Price    P5         Round 5                   P4                   Round 4    ...
Auction Process – Bidding in a Clock Round                                             Allocation Stage                  R...
Bidding in Round 1 – Specifying Number of Lots                                                 15
Bidding in Round 1 – Package Bid Saved                                         16
Auction Process – Viewing Results                                             Allocation Stage                  Round     ...
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                                                 700 MHz | 2.5 GHz               Pac...
Auction Process – Supplementary Round                                             Allocation Stage                  Round ...
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                                          ...
Auction Process – Assignment Stage                                             Allocation Stage                  Round    ...
Bidding in the Assignment Round:Initial Prices for all Frequency Options are Zero                                         ...
Bidding in the Assignment Stage:Specifying a Price for a Particular Frequency Range                                       ...
Bidding in the Assignment Stage:Reviewing Bids Placed for all Frequency Options                                           ...
Final Results Screen                       30
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The CCA from a bidder’s perspective - Peter Cramton - Power Auctions

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Presentation by Professor Peter Cramton of Power Auctions to the January 2012 digital dividend stakeholder workshops

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The CCA from a bidder’s perspective - Peter Cramton - Power Auctions

  1. 1. The Combinatorial Clock Auction from a bidder’s perspective Peter Cramton 13 January 2012
  2. 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 2
  3. 3. 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
  4. 4. Valuation model 700 MHz lots 2.5 GHz lots (2x5 MHz) (2x10 MHz) Coverage Capacity Speed Value 3 3 +++ +++ ++ $$$$$$ 2 2 ++ ++ ++ $$$$$ 2 1 ++ + + $$$$ 1 2 + ++ ++ $$$ 1 1 + + + $$ 0 2 ++ ++ $ • Determines value of alternative spectrum packages recognizing  Minimum requirements  Incremental value from additional lots of 700 MHz or 2.5 GHz 4
  5. 5. Bidding tool700 MHz lots 2.5 GHz lots (2x5 MHz) (2x10 MHz) Coverage Capacity Speed Value Cost Profit 3 3 +++ +++ ++ $$$$$$ $$$$$ $$ 2 2 ++ ++ ++ $$$$$ $$$ $$$ 2 1 ++ + + $$$$ $$ $ 1 2 + ++ ++ $$$ $ $$ 1 1 + + + $$ $ $ 0 2 ++ ++ $ $ $ • Includes valuation model and adds auction state  Prices  Activity • Supports bidder decision making throughout allocation stage • Helps translate valuation model into bidding strategy 5
  6. 6. 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
  7. 7. 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
  8. 8. Mechanics of bidding
  9. 9. Lot Configuration for purposes of example*** Not intended to be preferred configuration ***700 MHz: 703 (5 MHz blocks) 748 758 803Nationwide … Lower: (Paired)2 Categories: Upper: 8 Lots 1 Lot2.5 GHz: 2500 (10 MHz blocks) 2570 2620 2690Regional ACT NSW NT QLD … SA TAS VIC WA 1 Category: 7 Lots (Paired)
  10. 10. Auction Information*** Spectrum caps are just examples *** 10
  11. 11. Auction Process Allocation Stage Round opens Prices for Biddersnext round place bidsannounced Clock Rounds Results from Round previous Do any closes round are published products have excess demand? End of Clock Supplementary Assignment Rounds Round Stage 11
  12. 12. Auction Schedule for Clock Rounds 12
  13. 13. Clock stage Price Closing Price P5 Round 5 P4 Round 4 P3 Round 3 P2 Round 2 P1 Round 1 Supply Aggregate Demand 13
  14. 14. Auction Process – Bidding in a Clock Round Allocation Stage Round opens Prices for Biddersnext round place bidsannounced Clock Rounds Results from Round previous Do any closes round are published products have excess demand? End of Clock Supplementary Assignment Rounds Round Stage 14
  15. 15. Bidding in Round 1 – Specifying Number of Lots 15
  16. 16. Bidding in Round 1 – Package Bid Saved 16
  17. 17. Auction Process – Viewing Results Allocation Stage Round opens Prices for Biddersnext round place bidsannounced Clock Rounds Results from Round previous Do any closes round are published products have excess demand? End of Clock Supplementary Assignment Rounds Round Stage 17
  18. 18. Viewing the Results of Round 1 and Round 2 Prices 18
  19. 19. Specifying a New Package in Round 2 19
  20. 20. Immediate Feedback if your Bid is Invalid 20
  21. 21. A Summary of all Clock Packages Placed 700 MHz | 2.5 GHz Package abbreviation format: 1 . | . . 1 . 2 . 1 2 upper lower | ACT NSW NT QLD SA TAS VIC WA 21
  22. 22. Auction Process – Supplementary Round Allocation Stage Round opens Prices for Biddersnext round place bidsannounced Clock Rounds Results from Round previous Do any closes round are published products have excess demand? End of Clock Supplementary Assignment Rounds Round Stage 22
  23. 23. Bidding in the Supplementary Round:Initial Set of Bids from Clock Rounds 23
  24. 24. Bidding in the Supplementary Round:Improving bids placed in the Clock Rounds 24
  25. 25. Bidding in the Supplementary Round:Adding further Packages using upload facility 25
  26. 26. Auction Process – Assignment Stage Allocation Stage Round opens Prices for Biddersnext round place bidsannounced Clock Rounds Results from Round previous Do any closes round are published products have excess demand? End of Clock Supplementary Assignment Rounds Round Stage 26
  27. 27. Bidding in the Assignment Round:Initial Prices for all Frequency Options are Zero 27
  28. 28. Bidding in the Assignment Stage:Specifying a Price for a Particular Frequency Range 28
  29. 29. Bidding in the Assignment Stage:Reviewing Bids Placed for all Frequency Options 29
  30. 30. Final Results Screen 30

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