His 1985 papers developed the concept – and invented the terminology – of "strategic complements" that is now commonly used in game theory, industrial organisation and elsewhere. His PhD thesis, and independent work by Carl Christian von Weizsacker, began the study of consumer switching costs. His paper on supply function equilibria developed a standard model for the analysis of privatised electricity markets, and has been important in developing the theory of multiunit auctions. His papers apply ideas from auction theory to other economic contexts, including finance and political economy. He has also invented new auction designs, including the "Product Mix Auction" that is now in regular use by the Bank of England. This new auction for differentiated products has similarities to a simultaneous multiple-round auction, but runs instantaneously, is said to be more robust against collusion, and allows sellers, as well as buyers, to specify how the quantities they trade will depend on the auction prices. His other innovations include the Anglo-Dutch auction, and Reference-Rule Pricing for package auctions. He has also worked on applying tropical geometry to economics and auctions, including the Product Mix auction.
Public policy
He was principal auction-theorist designing the UK '3G' mobile-phone license auction that raised £22½ billion in spring 2000 and was far more successful than several parallel exercises on the European continent. The Netherland auction that took place 3 months later raised 1/4 of the revenue per head of population, and the difference has been attributed to the auction design. It has been argued that the UK Treasury owes £15 billion or more to him and Ken Binmore, who led the auction team. In 2002, he advised the UK government on the world's first auction for greenhouse gas emissions reductions, working with Nobel prizewinner Eric Maskin. In 2007–2008, he advised the UK and US governments on the financial crisis, and he developed a new form of auction to help the Bank of England alleviate the liquidity crisis. The Bank Governor, Sir Mervyn King, told the Economist that "The Bank of England's use of Klemperer auctions in our liquidity insurance operations is a marvellous application of theoretical economics to a practical problem of vital importance to financial markets." He subsequently advised other countries' Central Banks. He advised the US Federal Trade Commission 1999–2001, was a member of the UK Competition Commission from 2001–5, and remains on its Panel of Economic Advisors. He participated in the meeting that drafted the Potsdam Memorandum to the 2007 UN Climate Change Conference in Bali; he is on the Environmental Economics Academic Panel to the UK's Department of the Environment.
Personal life
Klemperer is married to economist Margaret A. Meyer, with whom he has written a number of research articles.
