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The second-price auction solves King Solomon's dilemma

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  • Mihara, H. Reiju

Abstract

Consider the problem of allocating k identical, indivisible objects among n agents, where k is less than n. The planner's objective is to give the objects to the top k valuation agents at zero costs to the planner and the agents. Each agent knows her own valuation of the object and whether it is among the top k. Modify the (k+1)st-price sealed-bid auction by introducing a small participation fee and the option not to participate in it. This strikingly simple mechanism (modified auction) implements the desired outcome in iteratively weakly undominated strategies. Moreover, no pair of agents can profitably deviate from the equilibrium by coordinating their strategies or bribing each other.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8801.

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Date of creation: May 2008
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Handle: RePEc:pra:mprapa:8801

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Keywords: Solomon's problem; implementation; entry fees; Olszewski's mechanism; collusion; bribes;

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  1. Perry, M. & Reny, P.J., 1995. "A General Solution to King Solomon's Dilemma," Papers, Tilburg - Center for Economic Research 9581, Tilburg - Center for Economic Research.
  2. Olszewski, Wojciech, 2003. "A simple and general solution to King Solomon's problem," Games and Economic Behavior, Elsevier, Elsevier, vol. 42(2), pages 315-318, February.
  3. Parimal Kanti Bag; Hamid Sabourian, 2004. "Distributing Awards Efficiently: More on King Solomon's Problem," Econometric Society 2004 North American Summer Meetings, Econometric Society 257, Econometric Society.
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