Auctions for Outer Space

Note: Below is part four of my series of blog posts on the allocation of launch licenses by the FAA.

Thus far, we have identified a novel solution to the problem of satellite congestion in outer space: the FAA or NASA should auction off the right to launch satellites into outer space instead of giving away these launch licenses for free. But how would a “launch auction” work? The type of auction that most people are familiar with is the “first-price sealed-bid auction” in which all bidders simultaneously submit secret bids — no bidder knows how much the other auction participants have bid. The sealed bids are then opened on a certain date, and the person with the highest bid (or second-highest bid in the case of a “second-price auction”) is declared the winner.

This is not, however, the method used by the FCC to allocate broadband spectrum licenses. Instead, the FCC uses a new method proposed by economists Paul Milgrom and Robert Wilson (both of whom are pictured below) called the “simultaneous ascending auction” or “simultaneous multiple-round auction”. Two of the main differences between the traditional auction format and the FCC format is that the sealed-bid auction usually involves just one round of bidding. In the simultaneous ascending auction, by contrast, there are multiple rounds of bidding, and all bidders are allowed to revise their bids after each round. (Bidders are even allowed to withdraw from the auction after each round.) The highest bids are announced to all the bidders after each round of bidding, and these rounds will continue to occur until no new bids take place — at that point the licenses are sold to the highest bidders.

The simple simultaneous ascending auction format described above has many desirable properties (see here, for example), which I won’t go into here. For now, it suffices to ask, Why doesn’t the FAA use some variation of the simultaneous ascending auction to allocate launch licenses, especially for the new generation of mega-constellation satellites? I will conclude my call for “launch auctions” in my next post.

Sweden: Paul Milgrom and Robert Wilson awarded Nobel Prize in economics |  Video Ruptly

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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4 Responses to Auctions for Outer Space

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