Auctions only work properly when there are clear rules attached to them which all participants understand. These should be designed both to prevent collusion and to bring the proceedings to an efficient close. Regulators have to stipulate the rules in some detail in bidding documents.
The nature of the rules required varies from the very basic to the more sophisticated, depending on the form of auction chosen.
In the former category, basic housekeeping rules have to be established to ensure that scaled bid remain confidential until the ‘official’ opening date, and that competing bids in an ‘open bidding’ system are delivered simultaneously by all competitors.
To bring complex multiple round auctions to a close, it is necessary to force all participants to bid at regular intervals (according to so-called ‘activity rules ’), rather than make unexpected bids as the end of the process approaches, and to ensure that there is a minimum bid increment, to prevent bids rising endlessly by small amounts. Both the Canadian Advanced Wireless Services (AWS) and other spectrum in the 2GHz range auction and the Finnish 2500-2690 MHz spectrum auction featured activity rules, for example.
In one US PCS auction, it was discovered that participants were using the amounts they bid to signal to competitors – more precisely to ‘warn them off’ bidding for certain lots. As a result, a rule was introduced which required bids to be in round numbers, which could not send signals of this type.
Module 3, "Authorization of Telecommunication/ICT Services", Section 4.1.1, "Features of a Multiple Round Auction: The Canadian Example"