In an interview, Klemperer explains his fascination with auctions: ‘I thought that if we couldn't understand auctions, then we probably couldn't understand how the whole economy works.
But by learning about auctions, we could learn about more complex environments, and auction models could be the building blocks for modelling more complex economic systems' (Klemperer in Petropoulos 2015).
Klemperer (2002a, 2003) discussed the pitfalls of moving from theory to practice. In his opinion, ‘most of the extensive auction literature...is of second order importance for practical auction design. The literature largely focuses on a fixed number of bidders who bid non-cooperatively' (Klemperer 2002a: 170; italics in original). In contrast, ‘what matters in auction design are the same issues that any industry regulator would recognise as key concerns: discouraging collusive, entry-deterring and predatory behaviour. In short, good auction design is mostly good elementary economics' (ibid.: 169-170). There was thus a link between the development of real-life auctions and the extensive research Klemperer had made in industrial organisation (IO) issues reviewed in Section 2 and his work with real- world regulation and competition policy in the United States and the United Kingdom.Klemperer has been involved in advising governments on many issues, but by far the highest profile policy engagements were applying auction theory to real auctions. Specifically, he has been closely involved in two very high-profile auctions.
4.1