Connected Price Dynamics with Revealed Preferences and Auctioneer’s Discretion in VCG Combinatorial Auction

Abstract

AbstractWe investigate open-bid protocols termed price-demand procedures in combinatorial auction problems. Instead of requiring buyers to reveal their entire valuation functions directly, the auctioneer gradually gathers information by offering price vectors and requiring demand responses to each buyer. The auctioneer continues to calculate the ‘provisional’ profile of valuation functions in a history-dependent manner and check whether the efficient allocations with and without any single buyer for this profile are revealed in the resultant history. Once these are revealed, the auctioneer ends the procedure and determines the VCG outcome associated with the provisional profile at the ending time. With the assumptions of revealed preference activity rule and connectedness, this paper shows that the VCG outcome associated with the provisional profile at the ending time is always the same as that associated with the true profile, even though the provisional profile is generally different from the true one. Only our procedures can achieve the correct VCG outcome. We further discuss the auctioneer’s discretion and buyers’ privacy concern.