A common fear regarding auctions is that the costs incurred by the firm in an auction will be passed on to the customer in the form of higher prices. While this may hold true for auctions in which firms bid royalties, this is generally not the case for auctions in which firms make lump-sum payments. This is because firms charge prices that maximise their profits and these are based on forward-looking costs and revenues and are independent of sunk costs like licence fees. Another objection is that large licence fees may constrain future investment. However, this argument implicitly assumes that the government has better information about the firms’ prospects and should use its own judgment in place of the judgment of commercial aspects implicit in the bids.

It is time the government understood the cost of a flawed public policy regarding spectrum pricing. With new technologies and a liberalised environment, allocation of spectrum has shifted from its being purely an issue of planning to being an effective tool in the creation of a competitive environment. Policies should recognise this. Radio spectrum policy should be seen in the broader context of numerous empirical studies establishing the link between Information Communications Technology and growth. The ‘beauty contests’ have indeed turned ugly!

The writer is a reader in economics, University of Delhi

payal.malik@gmail.com