In October 1996, William Vickrey and James Mirrlees were awarded the Nobel Prize in Economics for their fundamental contributions to the economic theory of incentives under asymmetric information. The Swedish Academy's announcement of the Prize makes reference to two specific applications of Vickrey's work on the theory of auctions:
An essential part of William Vickrey's research has concerned the properties of different types of auctions, and how they can best be designed so as to generate economic efficiency. His endeavors have provided the basis for a lively field of research which, more recently, has also been extended to practical applications such as auctions of treasury bonds and band spectrum licenses.
In August 1991, Salomon Brothers, Inc., admitted to placing unauthorized bids in several U.S Treasury debt auctions in 1990-91 in an attempt to gain a larger-than-allowed share of the securities being sold. The purpose was to "squeeze" those who had taken short positions in the (pre-auction) when-issued market. In the aftermath of the ensuing scandal, there was renewed government interest in re-examining the method by which Treasury securities are auctioned. Three months after the forum at which the speech below was presented, the Treasury adopted the recommended uniform-price auction procedure for the sale of its 2- and 5-year debt issues.
Since 1994, the Federal Communications Commission has conducted a series of auctions licensing spectrum for the provision of personal communications services (PCS). The first sizable such auction generated roughly $7.7 billion in revenues. The paper below describes the auction procedure that was used, points out some surprising issues that arise when conducting a multi-round sale of multiple goods, and provides a blow-by-blow summary of the within-the-auction interactions between two of the bidders.