Economists Catch Auction Fever

This chapter discusses the role played by the economists in designing auctions. The Google IPO auction is described in which Google chose an auction design known as the uniform-price Dutch auction, which is the same used by the U.S. Treasury to manage its debt. The success of the Google IPO can be attributed to several economists specializing in auction design, among them Stanford economist Paul Milgrom, who built his reputation by helping to design the Federal Communications Commission (FCC) spectrum auctions. The FCC auctions have since been copied and adapted for dozens of auctions in electricity markets and other industries involving more than $100 billion worldwide. Google's IPO auction is a prime example of how technically advanced auction trading has become. The recent success of auctions in a wide variety of new markets can be attributed to top economists who specialize in game theory. The chapter explains the difference between English auction system and the Dutch-style second-price sealed bid auction.