Who Gets What — and Why: The New Economics of Matchmaking and Market Design

by Alvin E. Roth

Bidders reluctant to share their intentions would want to wait until near the end of the auction before bidding, as we saw in chapter 7 when we considered sniping in eBay auctions. But if everyone waited, the information needed to produce an efficient allocation wouldn’t be transmitted. To avoid this, the design for the spectrum auction included activity rules, proposed by my colleagues Paul Milgrom and Bob Wilson, to prevent bidders from making late bids unless they had made bids on equivalent numbers of licenses (measured in terms of population served) earlier in the auction. Thus big bidders had to make their bids known early, and all bidders could adjust their bids in light of the competition. Simultaneous ascending auctions with activity rules enabled many bidders to compete simultaneously for many licenses, creating a thick market in which price discovery could take place. The activity rules also kept the auctions from dragging on interminably—another possible side effect of thick markets having to cope with the congestion of many possible transactions.