Is Spectrum License a Sunk Cost?
Sunk costs can impact future rationally economic behavior in one way. Sunk costs become a consideration in the decision whether to reinvest in the asset. Such reinvestment is typically to repair or replace the asset. If the asset represents a sunk cost, then the rational economic firm would not reinvest in the asset. It is not rational to spend additional money when even the original investment is not recoverable. This factors into spectrum licenses in two ways. First, spectrum licenses are typically issued for a finite period of time. Second, as technology progresses more usable spectrum becomes available. Such new spectrum is likely to be auctioned in so-called 3G auctions. Since these auctions set new records for revenues, adjusting for inflation and set-asides for small and minority-owned firms, some other explanation must be produced. Other explanations include irrational exuberance in valuation of such licenses or so-called survival bidding by current network providers. One can a
