A Good Choice

The 2020 Nobel Prize in Economics has been awarded to the US economists Paul Milgrom and Robert Wilson for their contributions to auction theory. Professor Achim Wambach, president of ZEW Mannheim, comments on this matter.

“Paul Milgrom and Robert Wilson have significantly shaped auction theory and its application. They jointly developed the design of the first frequency auction in the USA, which was conducted by the US telecommunications regulator in 1993. In doing so, they set the standards for the auction of telecommunications frequencies that are globally utilised.

Auctions do not only play a prominent role when it comes to the allocation of these frequencies, but are also the centrepiece of many markets. Both public and private purchasing is predominantly organised through auctions. Government bonds are awarded through auctions, which the energy market is also largely based upon. Auctions also play a pivotal role when it comes to the tendering of renewable energies.

They enable the allocation of limited resources to be quickly and efficiently organised. If nothing else, these auctions have developed into an all-purpose instrument for regulations. One of the most considerable findings made by both of the Nobel laureates was that it depends on the details of each individual market when implementing theory into practice. An auction that works well for government bonds can be wholly inadequate when allocating frequencies. Especially in public procurement the accurate design of an auction is crucial, as sheer allocation to suppliers with the lowest price would cause many undesirable effects.”

ZEW Mannheim is carrying out research on auctions with its own Research Group “Market Design” and supports operators concerning the design of auctions.