Hal Varian, writing today in the New York Times’ Economic Scene, describes auctions, how they work, and how design can influence whether or not participants can collude. This article summarizes a recent journal article by Paul Klemperer, an economist at Nuffield College, Oxford, and one of the most pre-eminent auction theorists.
Mr. Klemperer argues that the principles of good auction design are the same as for any other market: try to encourage entry, and try to discourage collusion.
It’s a great, easy to read article on a process that is becoming increasingly important, especially in energy and telecom industries.