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Fair Payments for Efficient Allocations in Public Sector Combinatorial Auctions

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Author Info

  • Robert W. Day

    ()
    (Operations and Information Management, School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • S. Raghavan

    ()
    (Decision and Information Technologies, The Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

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    Abstract

    Motivated by the increasing use of auctions by government agencies, we consider the problem of fairly pricing public goods in a combinatorial auction. A well-known problem with the incentive-compatible Vickrey-Clarke-Groves (VCG) auction mechanism is that the resulting prices may not be in the core. Loosely speaking, this means the payments of the winners could be so low, that there are bidders who would have been willing to pay more than the payments of the winning bidders. Clearly, this "unfair" outcome is unacceptable for a public sector auction. Recent advances in auction theory suggest that combinatorial auctions resulting in efficient outcomes and bidder-Pareto-optimal core payments offer a viable practical alternative to address this problem. This paper confronts two critical issues facing the bidder-Pareto-optimal core payment. First, motivated to minimize a bidder's ability to benefit through strategic manipulation (through collusive agreement or unilateral action), we demonstrate the strength of a mechanism that minimizes total payments among all such auction outcomes, narrowing the previously broad solution concept. Second, we address the computational difficulties of achieving these outcomes with a constraint-generation approach, promising to broaden the range of applications for which bidder-Pareto-optimal core pricing achieves a comfortably rapid solution.

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    File URL: http://dx.doi.org/10.1287/mnsc.1060.0662
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 53 (2007)
    Issue (Month): 9 (September)
    Pages: 1389-1406

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    Handle: RePEc:inm:ormnsc:v:53:y:2007:i:9:p:1389-1406

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    Related research

    Keywords: combinatorial auctions; core allocations; bidder-Pareto optimality; constraint generation; VCG payments; proxy auctions;

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    Cited by:
    1. Ott, Marion & Beck, Marissa, 2013. "Incentives for Overbidding in Minimum-Revenue Core-Selecting Auctions," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79946, Verein für Socialpolitik / German Economic Association.
    2. A. Mochon & Y. Saez & J. Gómez-Barroso & P. Isasi, 2011. "The Clock Proxy Auction for Allocating Radio Spectrum Licenses," Computational Economics, Society for Computational Economics, vol. 37(4), pages 411-431, April.
    3. Peter Cramton, 2013. "Spectrum Auction Design," Review of Industrial Organization, Springer, vol. 42(2), pages 161-190, March.
    4. Aytek Erdil & Paul Klemperer, 2010. "A New Payment Rule for Core-Selecting Package Auctions," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 537-547, 04-05.
    5. Kaplan, Todd R & Zamir, Shmuel, 2014. "Advances in Auctions," MPRA Paper 54656, University Library of Munich, Germany.
    6. Sano, Ryuji, 2013. "Vickrey-reserve auctions and an equilibrium equivalence," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 112-117.
    7. Liu, Pengfei & Swallow, Stephen K. & Anderson, Christopher M., 2013. "Threshold Level Public Goods Provision with Multiple Units: Experimental Effects of Disaggregated Groups with Rebates," Working Papers 24, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    8. Martin Bichler & Pasha Shabalin & Jürgen Wolf, 2013. "Do core-selecting Combinatorial Clock Auctions always lead to high efficiency? An experimental analysis of spectrum auction designs," Experimental Economics, Springer, vol. 16(4), pages 511-545, December.
    9. Robert Day & Peter Cramton, 2008. "Quadratic Core-Selecting Payment Rules for Combinatorial Auctions," Papers of Peter Cramton 08qcspr, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    10. repec:dgr:uvatin:2013027 is not listed on IDEAS
    11. Maarten Janssen & Vladimir Karamychev, 2013. "Gaming in Combinatorial Clock Auctions," Tinbergen Institute Discussion Papers 13-027/VII, Tinbergen Institute, revised 16 Dec 2013.
    12. Mochon, A. & Saez, Y. & Gomez-Barroso, J.L. & Isasi, P., 2012. "Exploring pricing rules in combinatorial sealed-bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 462-478.
    13. Laurent Lamy, 2010. "Core-selecting package auctions: a comment on revenue-monotonicity," International Journal of Game Theory, Springer, vol. 39(3), pages 503-510, July.
    14. Jacob K. Goeree & Yuanchuan Lien, 2009. "On the impossibility of core-selecting auctions," IEW - Working Papers 452, Institute for Empirical Research in Economics - University of Zurich.

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