DP7487 A New Payment Rule for Core-Selecting Package Auctions

Author(s): Aytek Erdil, Paul Klemperer
Publication Date: October 2009
Date Revised: December 2009
Keyword(s): combinatorial auction, core, core-selecting auction, multi-object auction, package auction, robust design, simultaneous ascending auction, Vickrey, Vickrey auction
JEL(s): C71, D44
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7487

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.