Introduction

In this introductory survey we review research papers on auction theory that may be of relevance to the design of auctions of government assets in general, and of spectrum licence auctions in particular. We focus on the main intuitions emerging from these papers, and refer to the original papers for technical details.

We begin in section 2 with a discussion of why economists typically favour auctions over other methods for allocating licences to operate in a market. In section 3, we have a first discussion on auction design, stressing the fact that a seller will typically face a much more complicated problem than just what auction form to use; he also has to think carefully about what to sell, whom to allow as bidders and when to sell. Of course, the solution to these problems will also depend on what goal is to be achieved. Assuming these problems are solved, we turn, in section 4 to an exposition of auction formats. We start the discussion with the simple case in which the seller has just one indivisible object for sale, for which we describe the four basic auction forms: two open auctions – the English (or ascending) auction and the Dutch (or descending) auction – and two sealed-bid formats, the first-price auction and the second-price (or Vickrey) auction.