Mark Bykowsky

Computational analysis of an auction for licensed and unlicensed use of spectrum

This paper employs simulation methods to evaluate the ability of three different auction mechanisms to determine an efficient license regime for radio spectrum as well as the efficient ownership of the associated rights. The two regimes explored are “licensed” spectrum, in which a winning bidder maintains exclusive rights to use the spectrum, subject only to technical restrictions, and “non-licensed” spectrum, in which multiple users are able to share spectrum on an open access basis. For each auction, we examine bidder incentives and provide detailed reports on both auction revenue and bidder surplus in a set of Nash equilibrium outcomes. Results are consistent with the preliminary conclusions of Bykowsky et al. (2008), that a market can be used to allocate spectrum between licensed and unlicensed use. When there is a clear market preference for either licensed or unlicensed use, all three auction mechanisms arrive at efficient outcomes. However, in the absence of such a preference, a first-price auction appears to be the preferred mechanism.

Economic Analysis at the Federal Communications Commission

This article reviews some of the major economic issues faced by the FCC in thelast year. It focuses on the application of new analytic techniques at the FCC, andidentifies several areas in which further academic research would be valuable to theFCC.

Welfare Effects of Paid for Prioritization Services: A Matching Model with Non-Uniform Quality of Service

We develop a stylized two-sided model of the local broadband Internet market where prices are used to facilitate “interactions” between the Broadband Internet Service Provider’s (BISP) subscribers and Content and Application Service Providers (CASPS), as well as the priority (i.e., speed) of those interactions. The model is used to evaluate the welfare and distributional effects of several “paid for prioritization” services offered by a BISP. The evaluation is conducted across a variety of economic environments to test the robustness of the welfare effects. The environments are generated by defining parameters that determine whether CASP valuations for interactions are either greater than or less than comparable valuations of subscribers, whether the BISP operates in a high cost or low cost environment, and whether linear or nonlinear pricing strategies are used on the BISP platform. Analysis demonstrates that in the majority of the examined economic environments, the BISP’s resources are more efficiently allocated when it is allowed to charge a uniform (non-discriminatory) price for priority on both the subscriber and CASP sides of the market. The efficiency gain is most pronounced when CASP valuations for interactions are high relative to subscriber valuations, when priority service is priced on an interaction basis, and when total costs are low. In a non-linear “data cap” pricing environment in which CASPs are only able to obtain priority service on an all or nothing basis for each of their subscriber interactions, priority pricing does not enhance market efficiency unless CASP values exceed subscriber values and total costs are low.

Net Neutrality and Market Power: Economic Welfare with Uniform Quality of Service

We compare the economic efficiency of imposing a “zero price rule” on Broadband Internet Service Providers (BISPs) with the economic efficiency associated with allowing the BISP to charge Content and Application Service Providers (CASPs) a non-discriminatory uniform price for “interacting” with their subscribers. The local broadband service market is structured as a stylized two-sided market where a BISP facilitates “interactions” between subscribers and CASPs. Participants on one side of the market differ in their willingness to pay to “interact” with participants on the other side of the market. Efficiency is measured by the extent to which market forces lead to the completion of the most valuable set of interactions given the cost the BISP incurs from completing those interactions and the regulatory environment. Under these conditions, a “zero price rule” enhances total surplus if and only if it prevents the BISP from otherwise reducing output with the objective of enhancing its own profits. Such would be the case if the BISP’s ability to establish supra-competitive prices on the CASP side of the market exceeds its ability to establish such prices on the subscriber side of the market. If market forces induce the BISP to establish competitive prices on each side of the market, then welfare is promoted in our stylized model if the BISP is allowed to set such prices on each side of the market.