Professor Milgrom’s business activities through Auctionomics – the high-stakes auction consulting and software company that he co-founded – include designing auctions and exchanges and advising bidders. He also serves on various boards and committees.
Design of Auctions and Exchanges
Over the past twenty-five years, Professor Paul Milgrom has been a prolific inventor of the most innovative and important advances in multi-item auctions and market design.
From 2012-2017, Milgrom led the team of economic advisers on to the US Federal Communications Commission which designed and provided software for the Incentive Auction. The auction has two parts: a Reverse Auction to buy television broadcast rights from TV stations and a Forward Auction to sell mobile broadband licenses. The Forward Auction raised raised $19.5 billion, and the Reverse Auction paid $10.0 billion of that to TV broadcasters in compensation for their broadcast rights. The remainder, net of expenses, accrues to the US Treasury.
The Incentive Auction project recaps Milgrom’s role in helping to create the original US (FCC) spectrum auction design – the simultaneous multiple round (SMR) auction – which introduced his “activity rule”; activity rules are now a nearly universal feature in dynamic multi-item auctions. Milgrom’s singular role in creating the FCC design is celebrated in an account by the US National Science Foundation (America’s Investment in the Future), which identifies this auction design as one of the main practical contributions of 20th century research in micro-economic theory. The same invention and Milgrom’s role in creating it was celebrated again by the prestigious US National Academy of Sciences (Beyond Discovery). The SMR design has been copied and adapted worldwide for auctions of radio spectrum, electricity, natural gas, etc. involving hundreds of billion dollars.
Another of Milgrom’s major innovations is the core-selecting package auction, developed with collaborator Professor Bob Day. This invention has now been incorporated into several major spectrum auctions throughout Europe. In recent applications, this rule has been integrated into the the “clock-proxy” auction design – a patent-pending innovation of which Milgrom was a coinventor.
In 2009, Milgrom invented the Assignment Auction and Exchange. This new mechanism shares the same arbitrage and flexible substitution properties as the original SMR mechanism and its descendants but, as a sealed-bid mechanism, it runs instantaneously. A variant of this design, Professor Paul Klemperer’s “product-mix auction,” has been used for bond purchases by the Bank of England.
In 2011, Milgrom invented a new auction rule for use in Internet advertising exchanges.
Milgrom is co-founder and chairman of Auctionomics – an auction consulting and software company.
Milgrom has consulted widely on high profile auction designs. At Google, Milgrom advised top management, including CEO Eric Schmidt and co-founder Sergey Brin, on the design of their IPO. At Yahoo!, he advised on the design of markets to sell on-line advertising. At Microsoft Networks, he advised on the design of auctions related to the placement of search advertising. He has also advised the US Treasury on the conduct of auctions to sell the warrants received by the Treasury as part of the TARP bank bail-out. He has also helped the government of Victoria, Australia, evaluate auctions for gaming rights.
In the past, Milgrom has advised regulators in the US, UK, Canada, Australia, Germany, Sweden, and Mexico on implementations of and improvements to the original SMR design. His clients have included many of America’s leading Internet companies. He has also participated in designing several procurement auctions, auctions to sell the output of an agricultural cooperative and auctions for electricity transmission rights.
Bidder Advice
Milgrom has advised bidders in radio spectrum auctions, power auctions, and bankruptcy auctions. One advisee, Comcast and its consortium, SpectrumCo, followed the advice of a Milgrom’s team in FCC Auction 66 to achieve the most exceptional performance in US spectrum auction history. SpectrumCo saved nearly $1.2 billion on its spectrum license purchases compared to the prices paid by other large bidders – such as T-Mobile and Verizon – for comparable spectrum acquired at the same time in the same auction. SpectrumCo’s tactics included a $750 million jump bid – the largest in the history of US spectrum auctions and a move that prompted the FCC to change the auction rules. Additional detail about the savings and the tactics and strategy employed is described in an academic working paper: “Winning Play in Spectrum Auctions.”
Milgrom’s team at Auctionomics also advised Bell Canada in spectrum auctions in three auctions in 2014-15, obtaining consistently superior results compared to other bidders. Results can be found at these links for the 700 MHz auction, the AWS3 auction, and the 2500 MHz auction, obtaining consistently superior results compared to other bidders