Winners' Curse: Why Spectrum Bidders Overpaid

Fortnightly Magazine - October 15 1997
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(And why power plant buyers may follow suit.)

"WINNERS' CURSE" IS IMPORTANT TO THE UTILITY ASSET AUCTIONS. Winners' Curse is the tendency for the "rookies" and the wide-eyed visionaries to overbid in auctions with uncertain valuations.

The spectrum auctions at the Federal Communications Commission reveal the Winners' Curse even in the more "successful" rounds, despite the agency's elaborate precautions.

FCC's 14 spectrum auctions booked almost $23 billion in license fees (em almost $10 billion in broadband personal communications services (PCS). That's close to $1,000 per man, woman and child in spectrum license fees alone. (No wonder some call FCC the "Federal Cash Cow.")

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Despite the promises of the game theorist "rock stars" (em many of whom are now advising utilities acquiring plants (em FCC's auctions may not have been as successful they claimed. For one thing, about $4 billion of the $10 billion bid in the PCS auctions are at risk. Rookie companies, such as NextWave, bid up properties to astronomical levels only to find their ability to attract capital severely limited.

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