Marketing Analysis - The Process of Spectrum Auctioning - Essay Example

The Process of Spectrum Auctioning Introduction A spectrum auction is a marketing tool that the government may use to sell transmission rights for an electromagnetic spectrum. An electromagnetic spectrum refers to several waves used for transmission of a specific type of important information for commercial use. The government has to get involved in the transmission of rights of ownership so that it can attain equality in the business. While the governments do this, they collect revenues based on the way the auction is designed. Studies from the recent data of the auctioning process in Europe indicate that the European nations collected over $ 200 billion from the auction in a period of the last 12 years after selling 3G broadband (Stefan, 102). Depending on the levels of planning and intensity of auctioning process, the auction can last for a few days or even months. This paper analyses the process of spectrum auctioning and the relevant terms used in the marketing and transfer of the spectrum rights. The paper presents an exploration of the practicality involved in auctioning process to the economy of any nation that involves itself in the process. How the Auctions are designed Spectrum auctions involve the sale of several interrelated spectrum licenses at a single moment in the market. There is no specified theory that guides the process of spectrum auctioning. The procedures of designing the auction involve utilization of scientific skills rather than merely economic theories and approaches. However, in the designing of the auction, there is a need that the developers attach more economic value to the amount of revenues collected against the expenses of running the auction (Maarten, 96). This strategy means that the efficiency of the spectrum auction depends on the amounts of revenues, which governments target at the end of the procedures. The levels of efficiency are specifically important because auctions are a relatively more stable source of revenues for the governments, similar to taxation. There are arguments that relate to the aspects, with some of them proposing that there is no need for the governments to attach much efficiency to the process of spectrum auctioning. However, as economists, there is a need that costs of factors of production be compensated in the amounts of revenues collected. This is the reason for making this topic an area of relevance to the economists. The Process of Spectrum Bidding and Terms Involved The Advantage of Open Bids over Single Sealed Bids According to Mike (93), open bids give a chance for the bidders to get valuable information from the market as it concerns the valuations. The accessed information helps to enhance effective assignment of licenses basing on its ability to let the bidders place their bids after scrutinizing the available data. Another possible advantage of open bidding is the ability to consider the rights of the bidders. In such a case, the bidders have a chance to make highly aggressive bids relating to the comprehension of relevant terms applicable to licenses. An evaluation of sealed bidding model reveals that in certain instance, bidders may collude in the process. If the bidders were to collude, then they would have a chance of influencing the bidding process, as it happens in the open bidding models. An open bidding process gives more chances for the bidders who do not abide by the collusive agreements to lose on a punitive measure. The highest bidder in the single sealed bidding model is the ultimate winner of the bidding process. This differs from the open bidding, where the winner should give an offer that is some amount higher than the second highest bidders (Mike 103). The Comparison of Simultaneous Open Bidding to Sequential Auctioning Sequential bidders do not get all the relevant information regarding the licenses in the market, therefore, they do not make respond to the information relevantly. The bidders need to keep guessing the next prices at the time they submit their current offers. There is a danger of miss-guessing the prices because such an activity may deter the process of license assignment if it happens that they were interdependent (Mike, 116). Sequential bidders do not have a chance of revisiting the previous licenses if they find that the prices of the current bids are higher than the initial ones. Such situations result in bidders regretting not having bought the licenses while the prices were lower than the current ones. Therefore, the tactics employed in sequential bidding are complicated, which means the efficiency of a sequential bid is low. Simultaneous bidders have a chance to make offers for a collection of interrelated licenses at a single time. The bidders also have the added advantage of obtaining information on the license prices as the bidding process proceeds (Mike 138). It essentially means that the bidders can shift between choices for the bids as the process continues. This advantage eliminates the unnecessary burden of guessing the future prices of the licenses. Simultaneous Ascending Bidding Some researchers argue that this method of bidding is the best in the spectrum auctioning market. The bidding process involves the sale of a number of high-value licenses at a go. The buyers in the market are free to place their offers on any group of licenses according to the prevailing terms. If it happens that one round ends before newer bids come up, then the round ends and the highest bidder wins the licenses. The licenses grant them the power to use the spectrum frequencies according to the rules laid by a specific country. Other Terms Used In Spectrum Auctioning Designated Units The entities are small business organizations, which do not have enough capital to compete in the auctioning process against other established companies. There are special provisions in the spectrum bidding market that let eligible companies participate. The governments of different nations do such activities to ensure accountability in the distribution of the spectrum resources (Sack and Tamassia 67). This action is also relevant because it assignment and bidding processes consider the independent private value strategy. The model permits the buyers in the market to pay any amount of money that they are willing and capable of paying in the market for acquisition of goods and services. Such privileges would otherwise make the large companies bully the starters and therefore, cause inequality in resource allocation. Spectrum Cap This term refers to the limit in the spectrum frequency that a given company can own in any given market. Every country has its own limit, with the use, for example, having a limit of 45 MHz of the broadband frequency for any particular region. The US government uses such a strategy as a means of ensuring only five competitors exist for any given market (Sack and Tamassia 74). Terms of Payment in the Spectrum Auction Bidders in the spectrum auction market submit their bids in at three times. They are required to pay before the auction starts as an expression of how much interest they have in the auction. This amount is refundable two weeks of the auction. The bidders also pay 20% of the bidding they make to the market while the auctioning process still has five days to closure. The last installment is by the winner who makes the payments about three months after the bidding (Patrick, and Yeo). Conclusion The strategies involved in spectrum auctioning are complicated, target at boosting the efficiency, and maximize on revenue collected. The auctioning process is also a way that governments of different countries employ distribute the spectrum resources to their best users. The bidders in the market compete with one another for the acquisition of the spectrum frequency. The governments of various nations must involve themselves in the process to ensure that there is equity in the frequency allocation process. Works Cited Bajari, Patrick L, and Jungwon Yeo. Auction Design and Tacit Collusion in Fcc Spectrum Auctions. Cambridge, Mass: National Bureau of Economic Research, 2008. Print. Buchanan, Mike. Profitable Buying Strategies: How to Cut Procurement Costs and Buy Your Way to Higher Profits. London: Kogan Page, 2008. Print Dehne, F, J.-R Sack, and Roberto Tamassia. Algorithms and Data Structures: 7th International Workshop, Wads 2001, August 8-10, 2000 : Proceedings. New York: Springer, 2000. Print. Janssen, Maarten C. W. Auctioning Public Assets: Analysis and Alternatives. Cambridge: Cambridge University Press, 2003. Print. Weishaar, Stefan. Towards Auctioning: The Transformation of the European Greenhouse Gas Emissions Trading System : Present and Future Challenges to Competition Law. Alphen aan den Rijn: Kluwer Law International, 2009. Print. Read More