Paul Milgrom designed the auctions that sell the world’s airwaves

Person: Paul Milgrom
Lived: b. 1948
Field: Economics, auction design
From: American

The story

Paul Milgrom was born in Detroit in 1948 to Jewish parents whose own parents had come from Poland and Ukraine. After working as an actuary he became an economist at Stanford under Robert Wilson, and spent years studying the theory of auctions: how bidders’ private information shows up in prices, and how the rules of an auction affect what sellers receive.

Until the early 1990s the U.S. government handed out radio spectrum licenses through hearings and lotteries. Mobile operators ended up with patchwork networks, and licenses worth billions often went to speculators instead of earning money for taxpayers. In 1993 Congress authorized the Federal Communications Commission to auction them. The design problem was hard: a license for one city is often worth more to a company that also wins neighbouring cities, so selling licenses one at a time forces bidders to guess at prices still to come.

Milgrom and Wilson, partly with Preston McAfee, proposed the simultaneous multiple round auction. All licenses are on sale at once, bidding proceeds in rounds with the results announced after each, and the auction ends only when a round passes with no new bids, which prevents last-second sniping. Milgrom added an activity rule that stops bidders from waiting on the sidelines and keeps the auction moving. To answer critics who said it was too complicated, he built a working demonstration in Excel spreadsheets. The FCC adopted the design, and its order cited Milgrom by name more than a hundred times.

The first auction, in July 1994, sold ten licenses in 47 rounds for 617 million dollars. According to the Royal Swedish Academy of Sciences, countries including Finland, India, Canada, Norway, Poland, Spain, the United Kingdom, Sweden and Germany adopted the format. FCC auctions using it raised more than 120 billion dollars between 1994 and 2014, and globally the mechanism has generated more than 200 billion dollars from spectrum sales. It has also been used to sell electricity and natural gas.

The auctions did more than raise money. By letting prices emerge as bidding went on, they helped licenses go to the companies that valued them most and could build networks with them, supporting the spread of mobile phones and wireless data around the world.

Why it matters

Spectrum auctions designed by Milgrom and Wilson help governments worldwide earn fair value for the public airwaves and get them quickly into use for mobile phone and broadband networks.

About Paul Milgrom

Stanford economist who co-invented the spectrum auctions that raised hundreds of billions for governments and moved airwaves into mobile broadband. Nobel Prize 2020.

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Paul Milgrom

b. 1948 · Economics, auction design

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