Discovering Prices: Auction Design in Markets with Complex Constraints

Kenneth J. Arrow Lecture Series

by Paul R. Milgrom

Traditional economic theory studies idealized markets in which prices alone can guide efficient allocation, with no need for central organization. Such models build from Adam Smith's famous concept of an invisible hand, which guides markets and renders regulation or interference largely unnecessary. Yet for many markets, prices alone are not enough to guide feasible and efficient outcomes, and regulation alone is not enough, either. Consider air traffic control at major airports. While prices could encourage airlines to take off and land at less congested times, prices alone do just part of the job; an air traffic control system is still indispensable to avoid disastrous consequences. With just an air traffic controller, however, limited resources can be wasted or poorly used. What's needed in this and many other real-world cases is an auction system that can effectively reveal prices while still maintaining enough direct control to ensure that complex constraints are satisfied.

In Discovering Prices, Paul Milgrom--the world's most frequently cited academic expert on auction design--describes how auctions can be used to discover prices and guide efficient resource allocations, even when resources are diverse, constraints are critical, and market-clearing prices may not even exist. Economists have long understood that externalities and market power both necessitate market organization. In this book, Milgrom introduces complex constraints as another reason for market design. Both lively and technical, Milgrom roots his new theories in real-world examples (including the ambitious U.S. incentive auction of radio frequencies, whose design he led) and provides economists with crucial new tools for dealing with the world's growing complex resource-allocation problems.

Genres: Economics

248 pages, Hardcover

Published May 23, 2017

Reviews

[Brian Cloutier · Rating 4 out of 5]

Don't get to say this every day: This book gave me respect for the FCC!

This book was not intended for non-economists, I occasionally had a hard time keeping up, but this was as good an introduction to auction design as diving into the deep end will ever be. He gave great descriptions of what makes Vickrey auctions so great and also described some of their downsides. I appreciated the discussion in the introduction of market design and the situations where you can't expect entirely unregulated markets to reach efficient outcomes.

It opens and closes with great descriptions of the FCC's 2016 incentive auction, where a bunch of spectrum was bought from TV stations in an auction and then auctioned right back to the highest bidders, mostly mobile wireless providers. At the end of this auction $7 billion was given to the US Treasury. Pretty impressive!

[Dalton TM · Rating 2 out of 5]

A book that is certainly intended for those with mathematical acumen.

I found the applied aspects of the book most engaging, particularly the chapters discussing FCC auctions. The middle chapters of the book are mostly theoretical formulations loosely related to the applied examples used in the beginning of the book.

If the book is intended to be a primer on auction theory, it makes sense to include the myriad mathematical definitions, theorems, propositions, and proofs. However Milgrom seemed to try constructing an overarching narrative to the book that was unrelated to much of the mathematical rigor.

The conclusion attempts to tie it all together, but it doesn’t come together as I hoped. There is no “Aha!” moment. A fine book, but a letdown nonetheless.

[DiogenesCFG · Rating 4 out of 5]

Buen ejemplo de varios fenómenos en el diseño de mercados

[pmk · Rating 4 out of 5]

intense but incredibly interesting