The effects of spectrum allocation mechanisms on market outcomes: Auctions vs beauty contests

This paper compares the evolution of seven key market outcomes in 47 countries after the allocation of mobile phone spectrum by auctions and beauty contests held from 2000 to 2008. Traditional auction theory predicts the merits of auction versus “beauty contests”. However, recent theoretical research shows that auctions impose selection and debt effects on the after-market competition that could harm consumers. We employ two semi-parametric estimators to determine the treatment effects and find that 3G mobile phone penetration rates among auctioning countries are 1.04-8.95% lower. Findings suggest that auctions, when used to raise public revenues, not only transfer profits to government but also sacrifice consumer surplus.