Efficient Iterative Combinatorial Auctions

This survey considers the following setting. A seller wants to sell a set of indivisible goods. A set of buyers are interested in buying the goods. Buyers have private values for bundles of goods they are interested in buying. The seller’s objective is to allocate the goods to the buyers efficiently (maximizing the total utility of buyers). Since the values of buyers are private information, this creates an incentive problem. Economic theory prescribes the Vickrey-Clarke-Groves (VCG) mechanism to solve this problem. However, the VCG suffers from various drawbacks because of its centralized implementation. An alternative decentralized way of implementing the VCG is the iterative combinatorial auctions. We survey the foundations of iterative combinatorial auctions that implement the VCG mechanism. We also describe a particular iterative combinatorial auction that implements the VCG mechanism. ∗I am indebted to David Parkes, with whom I did most of my work on combinatorial auctions, for being a wonderful coauthor and even a more wonderful friend and person. This survey is dedicated to David. I acknowledge support from Planning and Policy Research Unit (PPRU) at ISI, Delhi.