The Official Google Blog has an interesting post about Google’s strategy in the recent US spectrum auctions. For those who aren’t up with the play, prior to the auction, Google asked the FCC to impose some “openness” conditions on the winner, and in return agreed to bid up to the $4.6 billion reserve price on one large block of spectrum. The FCC didn’t agree with all of Google’s demands, but did impose “open applications” and “open handsets” conditions.

As Google’s blog post illustrates, Google didn’t really want to win the auction, but did want the reserve price to be reached so that whoever did win would be bound by these conditions. This would enable Google to get a slice of the action without being a spectrum owner. So Google was playing a billion dollar chicken game, trying to push the price up but not be the eventual winner. Check out this quote from the blog post:

Based on the way that the bidding played out, our participation in the auction helped ensure that the C Block met the reserve price. In fact, in ten of the bidding rounds we actually raised our own bid — even though no one was bidding against us — to ensure aggressive bidding on the C Block. In turn, that helped increase the revenues raised for the U.S. Treasury, while making sure that the openness conditions would be applied to the ultimate licensee.

Now this is very interesting, because usually in an auction we assume that each bidder really does want to win (up to a certain price). In addition, we also usually think that auction bidders would prefer the other bidders not to bid aggressively. But in this case we have a player who is interested in the outcome of the auction, and is willing to take a risk to achieve its objective, but seems not to really want to be the winner in the end.

The presence of any additional bidder represents extra competition, and so in that regard should be good from the point of view of revenue. But I wonder about efficiency. What if Google had actually won? Would that be an efficient outcome? I’m not sure. Perhaps they could have just re-sold the spectrum license anyway and it wouldn’t make any difference. Whatever, it’s certainly an interesting departure from the normal way the game is played in such a high-stakes auction.