Traditional economic theory studies idealized markets in which prices
alone can guide efficient allocation, with no need for central
organization. Such models build from Adam Smith's famous concept of an
invisible hand, which guides markets and renders regulation or
interference largely unnecessary. Yet for many markets, prices alone are
not enough to guide feasible and efficient outcomes, and regulation
alone is not enough, either. Consider air traffic control at major
airports. While prices could encourage airlines to take off and land at
less congested times, prices alone do just part of the job; an air
traffic control system is still indispensable to avoid disastrous
consequences. With just an air traffic controller, however, limited
resources can be wasted or poorly used. What's needed in this and many
other real-world cases is an auction system that can effectively reveal
prices while still maintaining enough direct control to ensure that
complex constraints are satisfied.
In Discovering Prices, Paul Milgrom--the world's most frequently cited
academic expert on auction design--describes how auctions can be used to
discover prices and guide efficient resource allocations, even when
resources are diverse, constraints are critical, and market-clearing
prices may not even exist. Economists have long understood that
externalities and market power both necessitate market organization. In
this book, Milgrom introduces complex constraints as another reason for
market design. Both lively and technical, Milgrom roots his new theories
in real-world examples (including the ambitious U.S. incentive auction
of radio frequencies, whose design he led) and provides economists with
crucial new tools for dealing with the world's growing complex
resource-allocation problems.
