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Inside the auction market to decode Nobel for economics

By WANG YIQING | China Daily | Updated: 2020-10-16 07:32

The winners of the 2020 Nobel Prize in Physics are announced during a news conference at the Royal Swedish Academy of Sciences on Oct 6. TT NEWS AGENCY/FREDRIK SANDBERG/REUTERS

The 2020 Nobel Prize for economics has gone to Paul R. Milgrom and Robert B. Wilson, both of Stanford University, "for improvements to auction theory and inventions of new auction formats", drawing attention on this significant economic theory.

The auction theory deals with how people act in the auction markets and researches the property of auction markets, thus becoming one of the most influential economic theories in recent times because of its strong practicability.

According to the Royal Swedish Academy of Sciences, the two winners have used their insights to design new auction formats for goods and services that are difficult to sell in a traditional way, and their discoveries have benefitted sellers, buyers and taxpayers around the world.

The world's top scientific honor has been awarded to many scientific and research works for their great theoretical significance, but economics is a science that has great practical application as it studies people's economic behaviors. And this year's Nobel Prize for economics is a good example of how theories work in reality.

Milgrom and Wilson studied the formation mechanism of price, which is the key exchange mechanism in social economic activities during auctions. Their research could balance the role markets and governments play and help solve the distribution problem of special resources, products and services in an effective and fair manner. Their studies have been adopted by the US government to sell radio frequency to telecommunications operators through auction, and also by many other countries.

The most important practical significance of the auction theory is that it comprehensively takes consumers' interests, enterprises' business opportunities and the government's functions into consideration, because undermining any of the three major market players will affect the achievement of efficiency and fairness and may result in long-term misallocation of resources.

The theory helps market players deal with complicated practical problems, and also reminds us that a sound, efficient and fair pricing mechanism requires the joint efforts of all market players.

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