This leads to disasters such as that which befell NextWave, which was unable to pay for the spectrum it had bid for. One answer is to avoid driving up the cost of spectrum by increasing the supply. As Bennett Zobb will propose, vast amounts of under-used spectrum could be made available, and spectrum should not be set aside for obsolete analog services. Zobb also will describe alternatives to auctions. This might help solve the small business problem, as selling to the highest bidder squarely conflicts with the idea of favoring companies that are not rich.
Auctions help mimic market processes that move resources to more highly valued uses.
But markets also reward sheer luck, or being the first to develop an idea, two features of markets that auctions do not capture well. Current auctions sell off licenses to a given territory one at a time. But in real markets, companies find that a package of licenses serving contiguous territories may have a greater value. Economists have begun to develop models to allow bidders to take into account the economies of scale or scope that could be realized if other licenses are a part of the package. One of the most beneficial reforms is also the most radical.