"Nobel Economics Prize Auction Theory, Foundation for Mobile Communication Development Presented"

The Government Secures Large-Scale Tax Revenue and Companies Establish Stable Business Foundations
Winners Fail to Provide Solutions to the Winner's Curse

[Asia Economy New York=Correspondent Baek Jong-min] U.S. media have evaluated that Stanford University professors Paul Milgrom and Robert Wilson, who won this year's Nobel Prize in Economic Sciences for auction theory, laid the foundation for the development of modern mobile communications.

[Image source=AP Yonhap News]

On the 12th (local time), the Associated Press explained that their research on auctions successfully enabled spectrum auctions, which led to the establishment of nationwide communication networks and had a dominant influence on the development of the current mobile communications industry and information technology (IT) sector.

According to communications sources, the two made a decisive contribution in 1994 when the U.S. Federal Communications Commission (FCC) successfully conducted spectrum auctions for mobile carriers.

They created a solution that instantly resolved the concerns of the government and telecom companies regarding the nationwide mobile network configuration that arose with the development of mobile communications.

In the past, the FCC allocated spectrum using first-come, first-served, comparative hearings, and lottery methods.

These methods caused disputes over fairness and unwanted spectrum assignments, which were problematic for both the FCC and companies.

A representative issue was spectrum "warehousing." Cases where some regions essential for nationwide network construction were preempted and sold at high prices to large telecom companies were a headache for both the government and companies.

Eventually, in 1993, Congress granted the FCC the authority to allocate public spectrum through auctions. Accordingly, the FCC distributed PCS spectrum via auctions in 1994.

Milgrom and Wilson designed the auction method. They decided to auction all spectrum licenses at once.

With the introduction of auctions, the number of participants engaging in spectrum warehousing decreased, and large telecom companies could participate expecting stable outcomes.

The government also achieved significant results. The winning bid for the first auction amounted to $617 million. This secured substantial tax revenue from spectrum that had previously been distributed virtually for free.

While comparative hearings or lottery methods required considerable costs, auctions lowered costs and increased revenue.

For the U.S. government, which was struggling with fiscal deficits, this became a representative success case of reducing expenditures and increasing income.

The auction method also prevented controversies over spectrum being allocated to specific operators favorably. This is why most countries follow the U.S. in selling spectrum or mining rights through auctions.

However, if auctions become overheated, winning bidders may fall into the "winner's curse." The two professors did not provide a precise solution to avoid the winner's curse.

When asked whether he researched ways to avoid the winner's curse, Professor Milgrom said, "Paying more does not necessarily mean the actual value is higher," but advised, "If you cannot accurately measure the value, you may fall into the winner's curse."

The Royal Swedish Academy of Sciences' Nobel Committee selected Professor Wilson, Professor Emeritus, and Professor Paul Milgrom of the same university as this year's Nobel Prize in Economic Sciences laureates.

The Nobel Committee stated the reason for the selection as "advancing auction theory and inventing new auction formats," explaining that "their inventions have benefited sellers, buyers, and taxpayers worldwide."