Fun auction theory fact of the day:
When Congress authorized the FCC to auction spectrum licenses, they required them to “ensure that … businesses owned by members of minority groups and women aregiven the opportunity to participate in the provision of spectrum-based services.” The FCC responded by giving bidding credits to women- and minority-owned firms. Unsurprisingly, critics of affirmative action criticized this as the government effectively giving away huge amounts of money to already wealthy minorities.
The fun part is, this actually increased the government’s revenue by over 12%, because subsidizing weaker bidders makes auctions more competitive and thus increases revenue for the seller. This can be tricky in practice because you don’t know a bidder’s true value until the auction, and bidders have no incentive to tell you the truth before that. But if you can find a good proxy for how weak a bidder is, subsidies work great.
(One might ask, is this sufficient constitutional justification for affirmative action? The authors of this paper say no, disparate treatment on the basis of race or gender is not justified if your only motive is to increase your profits. But if your motive is to increase diversity in the provision of spectrum-based services and it happens to increase your revenues as well, that’s fine.)