Professor Milgrom’s business activities have included designing auctions and exchanges, advising bidders, founding an auction software company, and serving on various boards and committees.
Design of Auctions and Exchanges
Over the past fifteen years, Professor Paul Milgrom has been a prolific inventor of the most innovative and important advances in multi-item auctions and market design.
First, Milgrom helped create the original US (FCC) spectrum auction design – the simultaneous multiple round (SMR) auction – which introduced his “activity rule”; activity rules are now a nearly universal feature in dynamic multi-item auctions. Milgrom’s singular role in creating the FCC design is celebrated in an account by the US National Science Foundation (America’s Investment in the Future), which identifies this auction design as one of the main practical contributions of 20th century research in micro-economic theory. The same invention and Milgrom’s role in creating it was celebrated again by the prestigious National Academy of Sciences (Beyond Discovery) – which is the main scientific advisor to the US government. The SMR design has been copied and adapted worldwide for auctions of radio spectrum, electricity, natural gas, etc. involving hundreds of billion dollars.
Another of Milgrom’s major innovations is the core-selecting package auction, developed with collaborator Professor Bob Day. This invention is incorporated into the Irish and UK spectrum auction mechanisms introduced in 2007 and a Portuguese spectrum auction planned for 2010. In 2008, the UK further revised their auction rules to include the patent-pending “revealed preference activity rule,” which was co-invented by Milgrom and his collaborator Professor Lawrence Ausubel. These two auctions also incorporate elements of the “clock-proxy” auction design – a patent-pending innovation of Milgrom in collaboration with Ausubel and Professor Peter Cramton.
Most recently, Milgrom has invented the Assignment Auction and Exchange. This new mechanism shares the same arbitrage and flexible substitution properties as the original SMR mechanism and its descendants but, as a sealed-bid mechanism, it runs instantaneously. This design is faster, operates at lower cost, and increases precision in setting prices compared to earlier designs. Perhaps most interesting is that this new design enables entirely new applications. It can be adapted into a non-price bidding mechanism for applications like placing students efficiently and fairly into courses in a college or business school.
Milgrom is Founder and Chairman of an auction design and software company, Auctionomics, which will develop and commercialize his proprietary auction, double-auction and matching market designs. For deeper consulting engagements, he works with teams from FTI Consulting.
Milgrom has consulted widely on high profile auction designs. At Google, Milgrom advised top management, including CEO Eric Schmidt and co-founder Sergey Brin, on the design of their IPO. At Yahoo!, he advised on the design of markets to sell on-line advertising. At Microsoft Networks, he advised on the design of auctions related to the placement of search advertising. He has also advised the US Treasury on the conduct of auctions to sell the warrants received by the Treasury as part of the TARP bank bail-out.
In the past, Milgrom has advised regulators in the US, UK, Canada, Australia, Germany, Sweden, and Mexico on implementations of and improvements to the original SMR design. His clients have included many of America’s leading Internet companies. He has also participated in designing several procurement auctions, auctions to sell the output of an agricultural cooperative and auctions for electricity transmission rights.
Milgrom has advised bidders in radio spectrum auctions, power auctions, and bankruptcy auctions. One advisee, Comcast and its consortium, SpectrumCo, followed the advice of a Milgrom-led team in FCC Auction 66 to achieve the most exceptional performance in US spectrum auction history. SpectrumCo saved nearly $1.2 billion on its spectrum license purchases compared to the prices paid by other large bidders – such as T-Mobile and Verizon – for comparable spectrum acquired at the same time in the same auction. SpectrumCo’s tactics included a $750 million jump bid – the largest in the history of US spectrum auctions and a move that prompted the FCC to change the auction rules. Additional detail about the tactics and strategy employed is described in an academic working paper: “Winning Play in Spectrum Auctions.”
Milgrom is an adviser to BlueKai, a marketplace for Internet ad-targeting data, OpenX, an Internet advertising exchange, Samasource, a nonprofit social enterprise whose mission to connect women, youth and refugees living in poverty to dignified, computer-based work, Calera, a green cement manufacturer, and Rackup.com, which auctions gift cards to consumers.