Incentives in Core-Selecting Auctions

Incentives in Core-Selecting Auctions Paul Milgrom October 18, 2006 A “core-selecting auction mechanism” is a direct mechanism for a multi-item allocation problem that selects a core allocation with respect to the bidders’ reported values and the auctioneer’s exogenously given preferences. For every profile of others’ reports, a bidder has a best reply that is a truncation report. For every “bidder optimal” core imputation, there exists a profile of truncation reports that is a full-information Nash equilibrium for every core-selecting auction with those payoffs. Among core-selecting auctions, the incentives to deviate from truthful reporting are minimal at every preference profile if and only if the auction always selects a bidder optimal allocation with respect to the reported preferences. Finally, a core-selecting auction that selects a minimum revenue core allocation is a bidder optimal auction and make the seller’s revenue a non-decreasing function of the bids, which eliminates distortions that can otherwise occur in the process of bidder application and qualification. All these results have analogues in two-sided matching theory.