Conclusion
Paul Klemperer continues to innovate with ideas relating to new hybrid capital for banks in order to increase financial stability (see Bulow and Klemperer 2015); a new approach to modelling preferences and equilibrium based on geometry (see Baldwin and Klemperer 2019); the effect of price controls on rent-seeking and consumer welfare (see Bulow and Klemperer 2012); and continues to seek improvements in auctions (see Erdil and Klemperer 2010).
However, it is possible to look back over his career from the perspective of 2019. One often finds when one looks at successful people and their lives that things just seem to effortlessly come together, with different parts reinforcing each other. This may be something of an ex-post rationalisation of what are unconnected random events. However, the temptation is very strong when one considers how the elements of Klemperer's research and auction design fit together almost perfectly.His early experience in the world of consultancy and working for firms like IBM, Monsanto and Arthur Andersen gave him experience of real-world problems and the need to explain and apply complex ideas in a simple way. Whilst he started as a mathematician at Cambridge, he switched to engineering because he wanted to apply mathematical ideas. However, driven by intellectual curiosity, he ended up at Stanford from 1980 to 1984, moving from MBA to PhD. Stanford was buzzing with ideas at that time and inspired much of Klemperer’s research for the following decade and beyond; from strategic complements and substitutes to work on consistent conjectures and switching costs, Klemperer developed new ideas and approaches to problems both with co-authors and as sole author. If one met Paul during this period, as I did, one would have described him as an IO economist with a theoretical bent. He developed the understanding of market power over time, oligopolistic interaction and entry.
His papers almost always have simple mathematical examples, diagrams which explain in a clear way what are often very abstract models and reasoning.The next stage of his career was dominated by auction theory. There were of course many very smart theorists researching in this field. Klemperer soon developed his own way of understanding auctions as markets. In his view, most auction theorists looked at the details of special cases that assumed away the issues found in real-life auctions. Whilst there are techniques and insights that are central to auction theory, such as revenue equivalence, you need to go further to understand real auctions, considering the factors found in real markets such as collusion, entry and asymmetric equilibria. This is what Klemperer proceeded to do. He was involved in two large and important auctions: as a team member in the 2000 3G spectrum auction in the United Kingdom and later as the sole designer of the product-mix auction for the Bank of England in the wake of the financial crisis. This built upon his previous work in industrial economics and oligopoly theory. The importance of being able to explain solutions in a simple way was an essential part of his success in persuading central bankers and policy makers to adopt his advice. Part of his ability to do this was his geometric intuition which enabled him to depict simple cases in diagrams.
Indeed, Klemperer has become something of an apostle of auction theory. In his opinion, all economists should know some auction theory. Since one can think of an auction as a market, understanding auctions can help us understand markets and vice versa. Auctions can be set up to obtain efficient or desirable outcomes where markets fail or are absent. However, the design of auctions needs a sound grasp of how markets work. Klemperer has proven himself not only an apostle of the theory but also a wizard of auction design.