Coordination and Costly Preference Elicitation in Electronic Markets

Electronic markets are based on classic market design assumptions that often do not hold. This thesis examines the conflict between theory and practice for the class of Vickrey-Clarke-Groves mechanisms (VCG) and the auctions it has inspired in electronic commerce, most notably the iterative auctions found on eBay. VCG mechanisms provide bidders with an optimal strategy to truthfully reveal their valuations to the marketplace, and in so doing VCG mechanisms enable efficient allocations of goods. VCG assumes not only that consumers are able to coordinate themselves to a single market and moment in time when conducting their transactions, but also that consumers can determine and express their valuations at no cost. However, in systems like eBay, bidders and sellers are highly uncoordinated, and the market is iterative because consumers are often assumed in practice not to have a complete sense of their valuation initially, but to incur costs in order to derive better beliefs of their value.