The 2020 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, commonly known as the 'Nobel Prize in Economics', has just been awarded to Paul R. Milgrom and Robert B. Wilson (Stanford) for their work to improve auction theory and the invention of new auction formats. This news has inspired the economists at HEC Lausanne who are working on market design, an approach applied by the two laureates.
For the group of researchers from the Department of Economics at HEC Lausanne*, the news of this Nobel Prize is significant. Indeed, market design is a relatively new field of economics that seeks to develop and translate economic theory and analysis into practical solutions to real-world problems. Professors Milgrom and Wilson applied this approach to auctions even before the term market design was coined.
We often think of markets as places where prices at which commodities are sold are determined, and those who are ready to pay the price receive the goods. But how do some prices come about? What should be the price of the newest work of Banksy? Questions like these can be solved through auctions.
The contribution of the 2020 Nobel Laureates in Economics provides one of the most prominent examples of the successful use of economic theory in practice. More and more applications and markets nowadays use auctions, including governmental procurement, airport landing slot assignments, and radio / mobile phone frequency allocation. In response, apart from fundamentally contributing to the theoretical foundation of auction theory, Professors Milgrom and Wilson invented new formats for auctions that sell interrelated objects simultaneously. Many of these formats are nowadays used in practice by private firms and governments.
For its part, the Lausanne market design group at HEC Lausanne studies situations when demand and supply fail to organize markets efficiently while reaching desirable objectives. The group combines the theoretical approach with the applied one using experiments as well as data.
* Researchers :