In October 2020 Paul Milgrom and Robert Wilson were awarded a Nobel prize for their work on auction theory and design. Tim Harford provided a neat overview of their contribution in the Financial Times. As he says,
A well-designed auction forces bidders to reveal the truth about their own estimate of the prize’s value. At the same time, the auction shares that information with the other bidders. And it sets the price accordingly. It is quite a trick.
In this lecture video Tim Roughgarden “provides a detailed case study of the 2016-2017 Federal Communications Commission incentive auction for repurposing wireless spectrum”. It demonstrates how economics, computer science and business can coincide to solve complete real world problems.
Consider the following video:
Having read the 3G case,
- Is there evidence of the Coase theorem in the 3G case?
- Is there evidence of the Transitional Gains Trap in the 3G case?
|Instructor resource: The Biggest Auction Ever: What Happened Next?, February 2019|
Here’s more detail on spectrum auctions:
- Further reading: Binmore, K., and Klemperer, P., (2002) “The Biggest Auction Ever: the Sale of the British 3G Telecom Licenses” Economic Journal, 112, pp. C74-C96
- Further reading: Milgrom, P., 1989, “Auctions and Bidding: A Primer” Journal of Economic Perspectives, 3(3):3-22
- Further reading: Roth, A. E., and Wilson, R. B., 2019, “How Market Design Emerged from Game Theory: A Mutual Interview” Journal of Economic Perspectives, 33(3):118–143
- Further reading: The Poetry of Capitalism
- Audio: Planet Money, “Auction Fever”
- Discussion points:
– Anchoring heuristic– Starts with a Dutch auction then turns to English one– Info asymmetry is reduced by testing
- Discussion points:
This page ties into Chapter 3 of Economics: A Complete Guide for Business
|Learning Objectives: To consider how auctions compare to other allocation mechanisms. To understand different types of auction and apply them to real examples.
Cutting edge theory: Auctions are used in e-commerce
Focus on diversity: An expert on applied auction formats, Susan Athey was the first female winner of the John Bates Clark medal. She has been an advisor to Microsoft and you can follow her on Twitter here.
Spotlight on sustainability: How governments can use beauty contests to mitigate the environmental impact of infrastructure spending