PublicationWorking Papers

License Allocation and Performance in Telecommunications Markets

Social Sciences > Economics

I study the allocation of licenses to operate an oligopolistic market characterized by high demand uncertainty. The model is motivated by recent experiences of spectrum licensing for new telecommunication technologies. Demand is uncertain at the time of investment (roll-out). Firms rely on credit both to invest and to acquire the license.

Under symmetry, and as a consequence of the possibility of default, firms’ investment is decreasing in the debt inherited from the licenseassignment stage. We compare auctions and beauty contests. Auctions extract a higher license price, and then lower investment. From a planner’s point of view, beauty contests dominate auctions when the revenue motive is unimportant and influence activities are not too wasteful.