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Stanford Scholars Win Nobel for Spectrum Auction Breakthroughs

Randy Sukow / Oct 13, 2020

Paul Milgrom and Robert Wilson, professors at Stanford University in California won the 2020 Nobel Prize for Economic Science, the Royal Swedish Academy of Sciences announced yesterday. The award recognizes Milgrom and Wilson’s “improvements to auction theory and inventions of new auction formats.” More specifically, their work contributed to spectrum licensing policy that has accelerated the pace of mobile communications in the United States and the world.

The FCC estimates that spectrum auctions it has conducted over the years have resulted in more than $100 billion to the U.S. Treasury.

More importantly, auctions rapidly placed needed spectrum into the hands of commercial users as advancements in digital mobile voice and data technologies exploded. During the auction era, cellular devices have progressed from bricks to flip phones to the latest smart phones and tablets. Wireless networks have advanced from 2G to the current 5G. According to press reports, AT&T and Verizon are among the companies ready to collaborate on 6G development.

The Commission began using auctions to assign spectrum to licensees beginning in the early 1990s. Prior to auctions, it used a complex comparative hearing process, which could take years to complete if there were several entities competing for the same license. Later, the Commission attempted to speed the process for early analog cellular licenses using a lottery system, which soon developed flaws of its own.

“Lottery winners were often simple speculators,” according to a paper by Penn State’s Center for the study of Auctions, Procurements and Competition Policy. “Economic resources were wasted on a grand scale, both in processing hundreds of thousands of applications and in the consequent need for real wireless operators to negotiate and buy licenses from these speculators.”

“The [Nobel] committee noted that [Milgrom and Wilson’s] ‘best-known contribution is the auction they designed’ for the FCC that enabled bidding in simultaneous multiple rounds, which the FCC began using in 1994 to auction portions of the U.S. spectrum for commercial development,” the FCC said in a press release. “This design has since been used to auction spectrum all over the world.”

“Thanks to the brilliance of these extraordinarily talented economists, the United States has seen enormous benefits to society from the development of successful spectrum auctions,” said FCC Chairman Ajit Pai.  “It’s a proud moment for the FCC, which managed the first auction of radio frequencies based on the design that Professors Milgrom and Wilson developed.”

NBC News reports that Milgrom learned about the award with an appropriately high-tech twist. The Nobel Committee was unable to reach Milgrom on the phone so Wilson, co-winner and neighbor, walked over to his house after 2 a.m. and knocked on the door.

The moment was captured on Milgrom’s Nest doorbell camera and the video has gone viral. His reaction to winning the Nobel Prize: “Wow.”
 


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