Stanford University economists Paul Milgrom and Robert Wilson won the Nobel Prize for work improving auction theory and inventing new auction formats. The award was announced today, October 12, 2020.
Milgrom’s and Wilson’s work first developed the Simultaneous Multiple Round Auction (SMRA) where multiple lots would be put up for auction at the same time, with successive rounds of bidding until there is a round with no more bidding, and the lots are sold accordingly …
Some auctioneers might think of this as similar to selling in the first round of the old “Iowa Method” but done with all lots open for bid simultaneously and multiple rounds of bidding — minus the final “combination” round.
This SMRA model was first used in July 1994 in regard to radio frequency bands wherein 47 rounds of bidding, 10 licenses were sold for 617 million dollars — far exceeding any prior auction results.
Subsequently, Milgrom and Wilson worked on a Combinatorial Clock Auction model where bidders could bid on one or more lots (one or combination of lots) in these successive rounds. Auctioneers might recognize this as similar to multi-par auction formats.
Milgrom also lead work to develop the Incentive Auction model which is usually comprised of two rounds of bidding — typically an initial descending (Dutch) round and a successive ascending auction for repackaged remaining lots where sellers in the first round can become buyers.
There is an enormous amount of study and analysis on these topics, including variations of the above models. Further evolution might be seen in the coming years, although most will continue to apply to licenses for electromagnetic spectrum sales and the like.
Can these models be used in other areas of the auction industry? It seems somewhat unlikely as we already have multi-par, ascending, descending, and sealed bids in regular practice around the United States and elsewhere.
The models herein are better suited for super-high-dollar, very limited supply/demand property where buyers are sellers and sellers are buyers, and there’s not much emotion involved — far from what we consider a typical auction scenario.
Relatedly, we wrote prior about so-called English, sealed-bid, and Dutch auctions here: https://mikebrandlyauctioneer.wordpress.com/2012/07/29/english-auction-versus-sealed-bid-and-dutch-auctions/. Formats are usually chosen based upon factors including the amount of demand, the variation of the opinion of value and the merits (or not) of disclosure.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services, and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.