Auction is defined as a method for selling an asset to the highest bidder.

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1. Executive Summary

The EU is the most advanced area in terms of mobile phone penetration in the world. By January 2001, telecommunication services in the EU were worth an estimate of €200 billion. In order to discourage monopolisation and centralisation in this market and encourage competition and new entry, the Member States of the EU and other European counties have chosen between auctions and beauty contests to allocate their licences.

   

In the year 2000-2001, the European 3G telecom auctions took place. There were of high importance at the time because; third-generation, or 3G, wireless technologies were expected to enable innovative multimedia services such as high-speed Internet, always-on Internet connections for a number of devices including mobile phones, handheld computers and laptops within the next few years, and other Internet Protocol-based services, beyond the capability of second-generation (“2G”) systems such as GSM.  This technology is a considerable leap from the existing 2G technology.

2. Introduction

Auction is defined as a method for selling an asset to the highest bidder. An auction is a public sale in which the price is determined by bidding, and the item is sold to the highest bidder. To participate in an auction means to bid to obtain an item. The person who offers the highest bid wins the right to purchase the item at that price. In other words, auction sale works by just connecting buyer and seller on the one market place. Internet technology has enabled people from all around the world to be in any market place they wish through the Internet.

Auction is really a unique idea, because everything is done by person to person. Auctions have a number of benefits like, ‘they raise substantial amounts of money for the government, giving government good information about the value of different uses spectrum, may help to better allocate spectrum allotment in the future, tend to be quick and cost effective’. In contrast, a beauty contest, or comparative hearing, has government regulators selecting a winner based on its own determination of the potential pros and cons of the candidates. 

3. How Auctions Work

Auctions can generally be divided into two basic frameworks; ascending auction and Sealed-bid auction. In the seal-bid (closed) auction, bidders are only allowed to place a bid once. In a first price sealed auction, the highest bidder prevails of the bid. Here it is not likely for competitors to collude because, it is not easy to respond to other bidders signals. In addition it makes it easer for other bidders to enter into the auction because weaker firms find that they have better chances to win the auction. However, using the sealed bid auction dose not necessarily guarantee the most efficient outcome.

Unlike the sealed-bid auction, the ascending (open) auction, the bid initially starts with a low price and goes up to higher prices until no new bids are made. Generally it is believed that choosing an ascending auction is a mistake. Because they ‘allow bidders to use early rounds to signal to each other how they might “collusively” divide the spoils and, if necessary, use later grounds to punish ant rivals who fail to cooperate. Ascending auctions can also deter entry into the bidding since a weaker potential bidder knows that a stronger bidder can always rebid to top any bid he makes.’ 

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3.1 Auctions Design

Always when designing an auction there, is two traditional concerns of competition policy these are:

  • Preventing collusion: firms may decide to collude to keep the bidding prices as low as possible. This actually happened in the Swiss auction when, two firms merged leaving four bidders for four licences. Therefore, the bidders just had to pay the reverse price of one-thirtieth per capita of the UK and German Prices, and one-fiftieth of what the government once hoped for.

  • Attracting entry: when there is only a few bidders in an auction there is a risk of being ...

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