http://www.theaustralian.news.com.au/story/0,20867,21264673-7582,00.html 

 In the upcoming weeks, The Australian Communication and Media Authority must decide how to auction the spectra for two new television channels (we call them A and B). The two methods being considered are an open outcry ascending auction and a sealed-bid auction. In the past, similar auctions (for FM radio licenses, for example) have used the open outcry method with reasonable success, but a strong faction has begun to support the sealed-bid method. Most believe that one company should not control both new channels, and an open outcry auction more easily allows wealthy and powerful companies to dominate their opposition. On the other hand, in a sealed-bid auction, a bidder is more likely to bid his true value for an object, so the auction winner will be the company who values the channel higher, rather than the company who is able to outmuscle its competitors. A sealed-bid auction also prohibits one bidder from observing the bids of other bidders and acting accordingly.

In class, in discussing different types of auctions it was shown that an ascending bid auction is equivalent to a second price sealed-bid auction. Although in the article it is not specified whether the sealed-bid procedure being discussed is a second price or first price auction, the dominant strategy in a second price sealed-bid auction is for every bidder to bid his true value of the object. It was also shown that bidding one’s true value is the dominant strategy in an open outcry ascending auction because if one stops bidding before the price has reached his value, he may not receive a potential positive payoff. The logical question that ensues is that if one’s dominant strategy is to bid his value in each of these types of auctions, why is there even a debate about which auction to use? The answer is suggested in the article and relates to the fact that bidders in the television channel auction may not bid their true value in an open outcry auction, because they may be willing to overbid in order to control both new channels and create a form of monopoly. Using the sealed-bid auction eliminates this problem.