Tuesday, March 1, 2011

What really matters if you are running an auction

Paul Klemperer distills wisdom from the 3G spectrum auctions:

while the European and Asian 3G spectrum auctions famously raised over 100 billion euros in total revenues, Hong Kong's, Austria's, the Netherlands', and Switzerland's auctions, among others, were catastrophically badly run yielding only a quarter or less of the per capita revenues earned elsewhere – and economic theorists deserve some of the blame

Instead of focusing on elegant mathematical theory, they should have paid more attention to parochial concerns like making sure that the auctions attracted enough entrants, and discouraged the bidders from colluding.


  1. Again, institutional concerns turn out to be more important than elegant mathematical economics? Would would have thunk? /sarcasm

  2. There are a lot of different variables that could have let to the failure of these auctions. Such variables could be unwanted merchandise, auction house located in rural area with limited exposure, lack of marketing, inexperienced auctioneers and poor management. Another issue could have been inadequate competition making it impossible to sustain market prices for customers. Either way, it could be impossible for the two sets of auctions (the successful ones vs. the unsuccessful ones) to learn anything from each other because of extenuating circumstances.

    In response to the article, I completely disagree with it when it mentioned it was necessary to overlook the mathematical theory. The foundation for every auction is built on mathematic calculations. Each bidder has their own idea on how much merchandise is worth. The same can be said for the auction house itself. A certain amount of revenue needs to be earned by the sale of the merchandise in order to make a profit. Therefore you cannot run a successful auction without considering the mathematical theories.