Professor Paul Klemperer’s product-mix auction design has formed the basis of the Bank of England’s Indexed Long-Term Repo (ILTR), a key part of the Bank’s toolkit for ensuring liquidity in challenging times. Klemperer’s model continues to be used to assist economic stability in the UK.

Auction theory is a branch of economics used to design rules for real-world auctions, and to aid understanding of market economies more broadly. The work of Professor Klemperer (Department of Economics) has been at the forefront of the subject for the last three decades. 

One of Klemperer’s significant achievements in the field is the invention of the product-mix auction, which is an efficient mechanism for selling different but related goods in a single round. In particular, this is a more efficient way for Central banks to accept a broad range of collateral against loans when injecting liquidity into the financial system.


Following the financial crisis of 2007/8, the Bank of England developed a new set of liquidity insurance tools. One of these is the Bank’s Indexed Long Term Repo (ILTR) operations, which was developed in collaboration with Professor Klemperer and based on his product-mix auction design.

Introduced in 2010, the ILTR provides loans of funds to financial institutions, mainly banks, and adapts to increased demand caused by liquidity stress. It now forms a key part of the Bank’s Sterling Monetary Framework. 

An Executive Director of the Bank of England described the auction as “a major step forward in practical policy to support financial stability”, and the then-Governor the Bank of England, Mervyn King, told The Economist that “[the product-mix auction] is a marvellous application of theoretical economics to a practical problem of vital importance to financial markets”


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In 2012, Klemperer was invited to  help develop the ILTR further. He did this in collaboration with Professor Elizabeth Baldwin, and the new design was introduced in February 2014.


The Independent Evaluation Office reviewed the revised design in 2018 and praised the way the sophisticated auction mechanism responded automatically to liquidity stress. Take-up in financial institutions has been substantial, including challenger firms as well as larger commercial banks. Stigma around usage has diminished, with some larger banks now taking out pre-emptive liquidity insurance around major events, such as elections, to insure against fluctuations.

Professor Klemperer’s work continues to have impact both in the UK and further afield. He worked with the Bank of England on their Corporate Bond Purchase Scheme, which was used to respond to challenging market conditions during the Covid-19 outbreak, and he continues to advise the Bank, with the assistance of Oxford DPhil student Charlotte Grace. 

He has also recently advised the Banco de México on some of its auction mechanisms which have similar features to the ILTR.


Klemperer, P. (2018) “Product-Mix Auctions”.

Baldwin, E and P. Klemperer (2019) “Understanding Preferences: “Demand Types” and the Existence of Equilibrium with Indivisibilities,” Econometrica, 87, pp. 867-932.

Bulow, J and P. Klemperer (2015), “Equity Recourse Notes: Creating Counter-cyclical Bank Capital,” The Economic Journal, 125, pp. F131-F157.

Klemperer, P. (2004) Auctions: Theory and Practice, Princeton University Press, Princeton: US.

Klemperer, P.  (2010) "The Product-Mix Auction: A New Auction Design for Differentiated Goods," Journal of the European Economic Association, 8, 2-3, pp 526-536.