Mannerisms

That auction system was devised by two economists who specialise in games theory, Ken Binmore of UCL and Paul Klemperer of Oxford University. It was, said Binmore and Klemperer, the biggest auction since the Roman Empire was auctioned off in AD195 to a winning bid from Marcus Didius Severus Julianus.

Bidding was done via fax machine (for the UK 3G auction, not the Roman Empire auction). The wireless network operators never had a chance. Their execs, bidding on machismo rather than calculation, were shorn like sheep.

For the 700MHz auction, now in its fourth week in the US, with over 100 rounds of bidding, and nearly $20 billion bid so far, the US government employed games theorists to work out a suitably efficient sheep-shearing mechanism. But so, apparently did all the major bidders.

However, it could be that the US government games theorists haven’t achieved what they wanted. According to the US Senator for Arkansas, Mark Pryor: “History will show that the way the FCC structured the auction basically helped the two big wireless companies (Verizon Communications and AT&T) to the detriment of competition in this country,” said Pryor.

Of course the winners haven’t been announced yet, and won’t be until the bidding has finished, but hopefully Pryor is wrong and new network operators will emerge from the auction process.

One reason why the big companies are favoured in an auction is because they can afford to pay more than new entrants because they already have infrastructure on which new spectrum can be bolted, whereas new entrants have to add the cost of building networks to the cost of buying spectrum.

It all goes back to Professor John Nash of Princeton University, winner of the Nobel Prize for Economics in 1994, and the inventor of games theory.

Then Russell Crowe, playing Nash in the Oscar-winning film A Beautiful Mind, popularised Nash’s work.

Auctions, it seems, have lost their simplicity for ever.