2020 Nobel Economic Sciences Laureates (Professors Paul Milgrom and Robert Wilson)

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Economics Nobel for auctions rewards work that has modern-age urgency: Studies by Paul Milgrom and Robert Wilson on how auctions can be made more efficient are, unexpectedly, used everywhere, every day. (13/10/2020) | @nature
…for example, in a so-called “English auction” the item on offer simply goes to the highest bidder; whereas in a “Dutch auction” the selling starts from a high price, and bidders submit the price they are willing to pay. …
One problem is that different bidders can have different degrees of knowledge about an item for sale. For example, in a property auction, all bidders for a property will have access to some public information such as its resale value. But other kinds of information — such as hidden structural damage — will be private and not known to everyone.
A bidder who does not have such information might end up overpaying if they want to buy the property. They might be able to infer what others know about the value if bids are public – and people start to drop out – but not if bids are private.
…if information about a property is highly uncertain — if the nature of the neighbourhood is rapidly changing, say — that could make buyers cautious and reduce the seller’s profit. In the 1980s, Milgrom — a former doctoral student of Wilson’s — developed models (partly in conjunction with Robert Weber of Northwestern University) that showed there is then an incentive for sellers to gather and share expert information with bidders, within different auction formats. …
…sellers are vulnerable to collusion between buyers to keep the buying price down. Wilson’s work in the 1970s helped to identify these problems and to design new auctions to avoid them…
…Milgrom and Wilson (and independently, McAfee) devised the simultaneous multiple-round auction (SMRA). …a chance to glean something about others’ private information while bidding, creating fairer and more efficient outcomes.

Nobel Prize in economics awarded to Paul Milgrom and Robert Wilson for auction theory | Auctiometrix
The quest for the perfect auction (PDF) | POPULAR SCIENCE BACKGROUND @ The Royal Swedish Academy of Sciences
Robert Wilson…how bidders behave in such circumstances. …the optimal bidding strategy for a first-price auction when the true value is uncertain. Participants will bid lower than their best estimate of the value, to avoid making a bad deal and thus be aficted by the winner’s curse. …with greater uncertainty, bidders will be more cautious and the final price will be lower. …the problems caused by the winner’s curse are even greater when some bidders have better information than others. Those who are at an information disadvantage will then bid even lower or completely abstain from participating in the auction.
Milgrom’s analysis – partly with Robert Weber…how well diferent auction formats deal with the problem of the winner’s curse. In an English auction, the auctioneer starts with a low price and raises it. Bidders who observe the price at which other bidders drop out of the auction therefore obtain information about their valuations; as the remaining bidders then have more information than at the start of the auction, they are less prone to bid below their estimated value. On the other hand, a Dutch auction, where the auctioneer starts with a high price and reduces it until someone is willing to buy the object, does not generate any new information. The problem with the winner’s curse is thus greater in Dutch auctions than in English auctions, which results in lower fnal prices.
Radio frequencies… initially done through a process known as a beauty contest, in which companies had to provide arguments for why they, in particular, should receive a licence. This process meant that telecom and media companies spent huge amounts of money on lobbying. The revenue generated by the process was limited, however.
…replaced by an entirely random allocation of licences, which likewise generated only limited income for the government.
… Finally, in 1993, it was decided that frequency bands would be distributed using auctions.
…(SMRA). This auction offers all objects (radio frequency bands in diferent geographic areas) simultaneously. By starting with low prices and allowing repeated bids, the auction reduces the problems caused by uncertainty and the winner’s curse. When the FCC frst used an SMRA in July 1994, it sold 10 licences in 47 bidding rounds for a total of 617 million dollars – objects which the American government had previously allocated practically for free.
…reduce the opportunities for manipulation and cooperation between bidders. Milgrom is one of the architects of a modifed auction (the Combinatorial Clock Auction) in which operators can bid on “packages” of frequencies, rather than individual licences. This type of auction requires signifcant computational capacity, as the number of possible packages grows very quickly with the number of frequencies for sale. Milgrom is also a leading developer of a novel format with two rounds (the Incentive Auction). In the frst round, you buy radio spectra from current licence-holders. In the second round, you sell these relinquished frequencies to other actors who can manage them more efciently.

A Nobel Prize for Auction Theory: Paul Milgrom and Robert Wilson | @TimothyTTaylor

Economics Nobel winners Paul Milgrom and Robert Wilson: Designing the right auction to solve conundrums | Financial Express