Revisiting Auction for Public Goods

The government is the custodian of public goods and these goods should be used only for the social and economic benefit of the public and allocated accordingly to the private contractors who should be motivated to bid truthfully. — Alok Singh

Pubic goods are those goods that are defined in economics as a good that has two characteristics of being non-excludable and non-rivalrous. Apart from public goods, the other classification of goods is private goods, common-pool resources, and club goods. The classification of goods that are based on two characteristics of excludability and rivalries results in four combinations. The first classification is of those goods which are excludable as well as rivalrous. The second classification of goods is those which are excludable but non-rivalrous. The third classification of goods is those which are non-excludable but rivalrous and the last classification is those goods that are non-excludable as well as non-rivalrous.  The goods such as clothing and cars are private goods and are excludable as well as rivalrous. Satellite television and movie theatres are goods that are excludable but non-rivalrous and such goods are called club goods. Free public transport and coal are goods that are non-excludable but rivalrous and are called goods that are common-pool resources. The goods such as free-to-air television like Doordarshan and national defense are non-excludable and non –rivalrous and such goods are called public goods. Rivalry increases the barrier for others to use the goods simultaneously, anti rivalry does not create any barrier for other users to use it simultaneously. Anti-rivalry is a recently added variant of rivalry i.e. forms of rivalry have been extended recently to incorporate the concept of anti-rivalry; the open source software is an example of anti-rivalry as more people use the open source software it becomes easier and more powerful to use.
Auction is a complex game based on concepts of game theory. The other simple game is –Rock, Paper, and Scissors. Auction is difficult to explain. So, the simple example to understand the rules of the game of auction is to extrapolate the game of rock, paper, and scissors. In this game, paper can beat rock as paper can cover rock. The scissor can beat paper as scissors can cut paper. The rock can beat scissors as the rock can break scissors. So, no one player has a dominant advantage in every other strategy of the opponent. The role of information comes into the picture. In the game of rock, paper, and scissors an individual player doesn’t know the strategy of the opponent player. It’s a game of chance and not of strategy if played fairly. The scope of the winner’s curse is also in an auction where despite winning the auction the winning player is at disadvantage to the losing player. 
Auction is one of the many ways to sell or buy goods. The objective of the seller is to sell the goods to ht highest bidder and the objective of the buyer is to sell to the lowest bidder. The commonly acceptable auction is to buy and sell paintings, real estate, antiques, and telecommunication spectrum among many other goods. Team building for sports like IPL also follows auction ways. The elective courses offered in a few business schools are also allocated to students through a variant of the auction process. So, the academics are also not untouched by the auction. Emission trading i.e. carbon trading is also done through auction. The role of auctions in various spheres of business and the public as well as private life is significant. The auction theory is well-researched in academics of mathematics and economics. The researchers keep looking for improving and developing auction models incorporating the concepts of game theory to optimize the objective. Auction is a game so there are players and the players have opposite goals. The win of one player is the loss to the other player. The win-win situation is tough to quantify measure and attain. So, all the auctions are not necessarily satisfying to all the participating players always. Moreover, replicating the same game repeatedly provides an opportunity for the players to come up with newer strategies. The same auction model if repeated other times for the same goods has difficulty to attain the objective. The players can create cartels, collaborate, and on occasion fail the auction process. This creates challenges for the executor of the auction. If the auctioned product is a public good then the stakeholders are many.
The telecommunication spectrum is one of the public goods which have a huge relevance in today’s daily life. It is a public good and a necessary infrastructure which can’t be excluded and can’t be rivalrous. The access to services that rely on the spectrum has to be made accessible to everyone. Here the role of the auction in spectrum allocation needs to be discussed. The constraints of a product to be classified as public good need to be satisfied. To make the auction process successful the characteristics of public goods can’t be diluted. 
The recipient of the Nobel Prize of 2020 in economic science was Paul R. Milgrom and Robert W. Wilson for their work on improving auction theory. The challenges for auction models are many. An auction model which succeeded in auctioning a good on one occasion can’t be assured that if the same auction model is repeated for auctioning the same good next time will also be successful. There are examples of spectrum auction model which is successful in one country but the same auction model is not successful in another country and there are examples where in the same country on one occasion a particular auction model is successful but on another occasion in the same country it is not successful.
The objective of the public good is to maximize the social and economic benefit for the public. But the recent auctioning of the spectrum has emerged as a tool to bridge the gap of fiscal deficit.  In doing so, it seems that success has a new definition whose objective has switched from maximizing the social and economic benefit to maximizing the monetary collection. The spectrum auction should be designed in such a way that there should be scope for a nascent player to enter the telecommunication sector, there should not be scope for encouraging monopoly, and the success is measured in terms of quantification of economic and social benefit to the public rather than measuring the quantity of money earned by the government. The reserve price and repeated changes in the reserve price to make the auction successful can be substituted by the revenue-sharing model for telecommunication operators. The separation of owners of the spectrum and the owners of telecommunication service providers can be explored. The spectrum exchange for trading the spectrum can also be practically executed. The artificial scarcity of spectrum and high prices of the spectrum can be controlled using spectrum trading.
The government is the custodian of public goods and these goods should be used only for the social and economic benefit of the public and allocated accordingly to the private contractors who should be motivated to bid truthfully and under not any circumstances should the allocation of the public goods be compromised to fix the fiscal deficit of the union government.qq

(Alok Singh is a Fellow of the Indian Institute of Management Indore, a freelancer academician, and associated with AGET Business School, Jhajjar.)

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