Sep 07, 2016

Quote from OA

"In 2000 the British government used their help to design a special auction that sold off its 3G mobile-telecoms operating licences for a cool £22.5 billion ($35.4 billion). Their trick was to treat the auction as a game, and tweak the rules so that the best strategy for bidders was to make bullish bids (the winning bidders were less than pleased with the outcome)."

I'm thinking best price for HM Government was paid by UK customers?

C.F. quote below from [1]

"The auction confrmed our view that industrial-organisation issues are more important than the informational issues on which the auction literature has mostly focused. In particular, the problems of attracting entrants and dealing with alliances and mergers are likely to remain major preoccupations of tele-com-auction designers for the foreseeable future. Tackling such problems sensibly requires high-qualit ymarket research that keeps pace with developments in an industry that can change its clothes with bewildering rapidity. We also need more theoretical work on the industrial-organisation implications of major auctions."

(Basically the high bids lead to mergers & consolidation)

[1] http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf

Aug 22, 2016

The design of the UK spectrum auction of 2000 should be mentioned here. As well as being pretty interesting from a game-theoretic standpoint, at $34bn raised, it was the largest auction since AD 195, at least by the reckoning of the designers:

http://www.nuff.ox.ac.uk/users/klemperer/biggestpaper.pdf

A colleague who worked on the auction design for the ELSE Centre at UCL ran some test auctions on student subjects with the premise that buyers were bidding for the rights to operate a diamond mine, with a guaranteed (and astronomically large) return. In experiments, bidders were explicitly warned to save some of their budget over for picks and shovels so they could actually extract the diamonds, should they win.

When it came time to bid, the students did not heed this advice... and nor did the telcos.