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Headline: Winners of wireless auction to pay $7 billion. “The Federal Gov’t completed the biggest auction in history today, selling off part of the nation’s airwaves for $7 billion to a handful of giants companies…” The CEO of a regional telephone company wants to purchase an FCC license.
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Headline: Winners of wireless auction to pay $7 billion “The Federal Gov’t completed the biggest auction in history today, selling off part of the nation’s airwaves for $7 billion to a handful of giants companies…” The CEO of a regional telephone company wants to purchase an FCC license.
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?
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
Answering the headline • R-squared = 0.85 • F-statistic indicates that the regression is highly significant (at the .13 percent level) • |t-statistics| > 2, with P-values < 5% … thus the true coefficients are different from zero and reasonably close to the estimated ones.
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