Developed by William Vickrey (Counterspeculation, Auctions, and Competitive Sealed Tenders, 1961), Roger Myerson (Optimal Auction Design, 1981), Paul Milgrom and Robert Wilson (the FCC spectrum auctions, 1994), and Paul Klemperer (Auctions: Theory and Practice, 2004).
Sets the rules for how bidders compete (open or sealed, ascending or descending, first price or second), so bids reveal true value and resist collusion.
When to reach for it
Several parties want the same asset, contract, or scarce resource, and the seller needs a rule for who gets it and at what price.
How it runs
- Decide the goal: revenue, efficient allocation, speed, or resistance to collusion.
- Size up the bidders and how they differ.
- Choose a format that fits the goal and the bidders.
- Set a reserve price and the rules on what bidders see.
- Pilot or simulate when the stakes are high.
- Watch for collusion and adjust in repeated rounds.
Where it sits in SOLVE eX
Go to the source
- Counterspeculation, Auctions, and Competitive Sealed Tenders, Journal of Finance, 1961
- Optimal Auction Design, Mathematics of Operations Research, 1981
- Simultaneous multiple-round auction design for the FCC spectrum sales, 1994
- Auctions: Theory and Practice, 2004