Headline: Winners of wireless auction to pay $7 billion

1
Headline Winners of wireless auction to pay 7
billion

• The Federal Govt completed the biggest auction
  in history today, selling off part of the
  nations airwaves for 7 billion to a handful of
  giants companies
• The CEO of a regional telephone company wants to
  purchase an FCC license.

2
Headline Winners of wireless auction to pay 7
billion

• population is 7 greater than the average
• same number of licenses
• in the most recent auction 99 bidders an
  average of 70.7 million for a single license
• log(P) 2.23 1.2log(Q) 1.25log(Pop)
• How much money does the CEO expects his company
  will need to buy a license? How much confidence
  do you place in this estimate?

3
Answering the headline

• log(P) 2.23 1.2log(Q) 1.25log(Pop)
• log-linear regression ? 1.25 ?P/7 ? ?P
  8.75 ? the expected price needed to win is 76.9
  million

4
Answering the headline

• R-squared 0.85
• F-statistic indicates that the regression is
  highly significant (at the .13 percent level)
• t-statistics gt 2, with P-values lt 5
• thus the true coefficients are different from
  zero and reasonably close to the estimated ones.

5
Answering the headline

• However,
• the upper bound of the 95 confidence interval
  for log(P) is 1.73, the CEO can be 95 confident
  that 79.3 million will be enough to win the
  license. (Why?)
• should exercise caution in using these
  estimates need to know regional income, number
  of bidders