Fair payments for efficient allocations in public sector combinatorial auctions

Abstract

Motivated by the increasing use of auctions by government agencies, we consider the problem of fairly pricing public goods in a combinatorial auction. A well-known problem with the incentive-compatible Vickrey-Clarke-Groves (VCG) auction mechanism is that the resulting prices may not be in the core. Loosely speaking, this means the payments of the winners could be so low, that there are bidders who would have been willing to pay more than the payments of the winning bidders. Clearly, this "unfair" outcome is unacceptable for a public sector auction. Recent advances in auction theory suggest that combinatorial auctions resulting in efficient outcomes and bidder-Pareto-optimal core payments of..