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A New Payment Rule for Core-Selecting Package Auctions

Author

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  • Aytek Erdil
  • Paul Klemperer

Abstract

We propose a new, easy-to-implement class of payment rules, "Reference Rules" to make core-selecting package auctions more robust. Small, almost-riskless, profitable deviations from "truthful bidding" are often easy for bidders to find under currently used payment rules. Reference Rules perform better than existing rules on our marginal-incentive-to-deviate criterion, and are as robust as existing rules to large deviations. Other considerations, including fairness and comprehensibility, also support the use of Reference Rules. (JEL: D44, C71) (c) 2010 by the European Economic Association.

Suggested Citation

  • 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.
    • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:537-547
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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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