Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition

INTRODUCTION 2 I. THEORY 4 A. Set-Asides Can Enhance Intragroup Competition Among Strong Bidders 6 B. Bidding Credits Can Create Effective Set-Asides 7 C. Bidding Credits Can Create Intergroup Competition 7 D. Affirmative Action Can Increase Expected Revenue When the Government Is Imperfectly Informed About Bidder Valuations 7 E. Affirmative Action Can Destabilize Tacit Collusion 9 II. EMPIRICISM 9 A. Describing the Licenses and the Auction Rules 10 B. The Impact of Affirmative Action 14 1. Comparing the nationwide and regional results 14 2. The impact of designated crossover bidding 17 3. The impact of the set-aside licenses. 22 C. Alternative Hypotheses 23 1. Hiding in the grass 24 2. The designated bidders would have bid anyway 25 3. Affirmative action might have chilled non-designated bidder participation 26 D. Strategic Perversities: Bidding Above Atomistic Reservation Prices 26 1. Risk of partial aggregation. 26 2. Raising rivals’ costs and predatory strategies. 27 3. Reduced retail competition. 28 III. APPLICATIONS TO GOVERNMENT PROCUREMENT AND PRIVATE EMPLOYMENT 29 A. Government Procurement 29 B. Private Employment 31 IV. LEGAL IMPLICATIONS 32 A. Public Affirmative Action 32 1. Revenue enhancement is constitutionally insufficient. 32 2. Did the FCC’s rules enhance minority or female control of the airwaves ? 33 3. Affirmative action costs the government less than is commonly assumed. 34 B. Private Affirmative Action May Deserve Higher Scrutiny 35 CONCLUSION 36 APPENDIX 37