UCLA

Recent proposals to limit the participation of Verizon Wireless and AT&T in the upcoming broadcast TV spectrum incentive auction have rekindled the debate on the interactions between auction design and competition policy. Existing literature analyzes the efficiency of spectrum auctions by focusing on auction outcomes, noticing that there is little immediate post-auction resale in the secondary market for spectrum. However, the effects of specific pro-competitive auction policies on the market structure can only be fully understood by considering long-run market outcomes.

This dissertation provides a historical overview of the market for broadband PCS spectrum and then documents the construction of a unique and first comprehensive dataset of firms' spectrum licenses holdings. I then use this dataset to investigate the long-term effects of auction restrictions similar to the ones recently proposed.

I document how eligibility restrictions for entrepreneurs in the early years of the market for broadband PCS spectrum initially create two separate markets, the gradual opening of the restricted market, and its eventual convergence with the unrestricted one. Second, and contrary to the existing literature, the detailed nature of my data shows there was a significant level of market activity immediately following the auctions, a portion of which can be attributed to specific preferential treatment policies used. To investigate the actual transition of restricted spectrum from entrepreneurs to large companies, my identification strategy uses the institutional design of eligibility restrictions, resulting in considerable differences in the observed build-out behavior of entrepreneurs and large companies. While the latter have no incentive to meet the construction requirements ahead of time, doing so allows entrepreneurs to potentially sell their licenses to large companies. Results show a consistent pattern of entrepreneurs building out their licenses early only to immediately sell them to large companies.

By first constructing a unique spectrum license dataset and then exploring the effects of preferential treatment provisions used in spectrum auctions for PCS licenses, this dissertation provides evidence that these provisions did not achieve their long-run goal in terms of the desired market structure. Instead, there is strong evidence of opportunistic behavior of entrepreneurs, who get pulled in because of eligibility restrictions and then quickly resell their licenses to large companies. In general, it appears the presence of secondary markets undoes the outcomes generated in auctions (and desired by the policymaker). Because of this, FCC should consider regulating secondary markets in line with their existing regulatory practices rather than imposing auction restrictions, i.e. regulating auctions.