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ENDNOTES

  1. See U.S. Department of Commerce (1991).
  2. See Zaretsky (1997) for another example of market solutions to scarcity.
  3. Because Bud's and Lou's strategies and options are identical, the following analysis also holds true for Lou.
  4. The Vickrey auction was named for Nobel laureate William Vickrey, who introduced the concept in 1961.
  5. If a high bidding firm withdraws its bid during the auction, and the final bid is lower, the withdrawing firm has to pay the difference between the two, which both guarantees revenue to the FCC and prevents superfluous bids. For more information about the details of the FCC spectrum auctions, see McMillan (1994) or McAfee and McMillan (1996).

REFERENCES

Binmore, Ken. Fun and Games: A Text on Game Theory (Lexington, Mass.: D.C. Heath and Company, 1992).

McAfee, R. Preston, and John McMillan. "Analyzing the Airwaves Auction," Journal of Economic Perspectives (Winter 1996), pp. 159-75.

McMillan, John. "Selling Spectrum Rights," Journal of Economic Perspectives (Summer 1994), pp. 145-62.

________. "Why Auction the Spectrum?" Telecommunications Policy 19:3 (1995), pp. 191-99.

"Revenge of the Nerds," The Economist (July 23, 1994), p. 70.

U.S. Department of Commerce. U.S. Spectrum Management Policy: Agenda for the Future. Washington, D.C., NTIA Special Publication 91-23 (February 1991).

Zaretsky, Adam M. "Rush-Hour Horrors: How Economics Tackles Congestion," The Regional Economist, Federal Reserve Bank of St. Louis (April 1997), pp. 10-11.