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Putting auction theory to work : the simultaneous ascending auction

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  • Milgrom, Paul

Abstract

The"simultaneous ascending auction"was first introduced in 1994 to sell licenses to use bands of radio spectrum in the United States. Much of the attention devoted to the auction came from its role in reducing federal regulation of the radio spectrum and allowing market values, rather than administrative fiat, to determine who would use the spectrum resource. Several parts of economic theory proved helpful in designing the rules for simultaneous ascending auction and in thinking about how the design might be improved and adapted for new applications. After briefly reviewing the major rules of the auction in section 2, the author turns in section 3 to an analysis based on tatonnement theory, which regards the auction as a mechanism for discovering an efficient allocation and its supporting prices. The analysis reveals a fundamental difference between situations in which the licenses are mutual substitutes and others in which the same licenses are sometimes substitutes and sometimes complements. Section 4 is a selective account of some applications of game theory to evaluating the simultaneous ascending auction design for spectrum sales. Results like those reported in section 3 have led to renewed interest in auctions in which bids for license packages are permitted. In section 5, the author uses game theory to analyze the biases in a leading proposal for dynamic combinatorial bidding. Section 6 briefly answers two additional questions that economists often ask about auction design: If trading of licenses after the auction is allowed, why does the auction form matter at all for promoting efficient license assignments? Holding fixed the quantity of licenses to be sold, how sharp is the conflict between the objectives of assigning licenses efficiently and obtaining maximum revenue? Section 7 concludes.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1986.

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Date of creation: 30 Sep 1998
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Handle: RePEc:wbk:wbrwps:1986

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Keywords: Economic Theory&Research; International Terrorism&Counterterrorism; Markets and Market Access; Environmental Economics&Policies; Labor Policies; Markets and Market Access; Access to Markets; Economic Theory&Research; Environmental Economics&Policies; International Terrorism&Counterterrorism;

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  1. Groves, Theodore & Loeb, Martin, 1975. "Incentives and public inputs," Journal of Public Economics, Elsevier, vol. 4(3), pages 211-226, August.
  2. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
  3. Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February.
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  5. Jeffrey S. Banks & John O. Ledyard & David P. Porter, 1989. "Allocating Uncertain and Unresponsive Resources: An Experimental Approach," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 1-25, Spring.
  6. Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19.
  7. Peter Cramton, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Papers of Peter Cramton 95jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  8. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  9. Ledyard, J.O. & Noussair, C. & Porter, D., 1994. "The Allocation of Shared Resource within an Organization," Purdue University Economics Working Papers 1063, Purdue University, Department of Economics.
  10. Banks, Jeffrey S. & Ledyard, John O. & Porter, David P., . "Allocating Uncertain and Unresponsive Resources," Working Papers 680, California Institute of Technology, Division of the Humanities and Social Sciences.
  11. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Lisa J. Cameron & Peter Cramton & Robert Wilson, 1997. "Using Auctions to Divest Generation Assets," Papers of Peter Cramton 97elec, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  13. R. Preston McAfee & John McMillan, 1996. "Analyzing the Airwaves Auction," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 159-175, Winter.
  14. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
  15. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-83, March.
  16. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
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