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Bids for the UMTS system: An empirical evaluation of the Italian case

Author

Listed:
  • Pasquale L. Scandizzo

    (University of Rome, Tor Vergata, Italy)

  • Marco Ventura

    (ISAE, Institute for Studies and Economic Analyses,Department of Law and Economics, Rome, Italy)

Abstract

The aim of this paper is to analyze the licensing of the telecommunication spectrum as a public good and the search for equilibrium prices through bilateral bargaining and multilateral bidding. It develops a general model of price setting under dynamic uncertainty and applies it to the Italian auction for Universal Mobile Telecommunications System (UMTS). The empirical application shows that the model can be used both to determine the base price as well as other desirable characteristics to organize an auction and to better understand, after the auction is closed, what really happened in terms of the critical factors involved. After recalling some basic concepts on spectrum rights and reviewing the general experience with UMTS auctions in europe, the formal model and its application are presented. The results confirm certain views on the Italian auction, which are widely shared but were never tested before, namely that: (i) given the initial price, the number of licenses offered for the bidding should have been fewer, or alternatively, (ii) given the number of licenses, the base price should have been higher and (iii) the main bidder underpaid for the license. The model also allows us to quantify the bidders’ reservation price and the State and the bidders’ implicit bargaining powers.

Suggested Citation

  • Pasquale L. Scandizzo & Marco Ventura, 2006. "Bids for the UMTS system: An empirical evaluation of the Italian case," CEIS Research Paper 88, Tor Vergata University, CEIS.
  • Handle: RePEc:rtv:ceisrp:88
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    References listed on IDEAS

    as
    1. Odin K. Knudsen & Pasquale L. Scandizzo, 2005. "Bringing Social Standards into Project Evaluation Under Dynamic Uncertainty," Risk Analysis, John Wiley & Sons, vol. 25(2), pages 457-466, April.
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    3. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    4. Valletti, Tommaso M., 0. "Spectrum trading," Telecommunications Policy, Elsevier, vol. 25(10-11), pages 655-670, October.
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    6. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
    7. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May.
    8. Lee, Darin, 0. "Lessons from the Nigerian GSM auction," Telecommunications Policy, Elsevier, vol. 27(5-6), pages 407-416, June.
    9. van Damme, Eric, 2002. "The European UMTS-auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 846-858, May.
    10. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
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    Cited by:

    1. Scandizzo, Pasquale L. & Ventura, Marco, 2010. "Sharing risk through concession contracts," European Journal of Operational Research, Elsevier, vol. 207(1), pages 363-370, November.
    2. Pasquale L. Scandizzo & Marco Ventura, 2008. "A model of public and private partnership through concession contracts," ISAE Working Papers 104, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

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    Keywords

    UMTS; Auction; Real Options; Licence.;
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