How Auctions Work, And Why Design Matters

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.