IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v143y2024icp191-203.html
   My bibliography  Save this article

The groupwise-pivotal referral auction: Core-selecting referral strategy-proof mechanism

Author

Listed:
  • Jeong, Seungwon (Eugene)
  • Lee, Joosung

Abstract

We introduce the groupwise-pivotal referral (GPR) mechanism for auctions where buyers can participate through referrals. Each buyer's type consists of a valuation and referable buyers. Unlike the second-price auction (SPA), the Vickrey-Clarke-Groves (VCG) mechanism provides referral incentives. However, VCG is not budget-feasible. In contrast, under complete information, GPR is core-selecting, implying efficiency and budget feasibility. Under incomplete information, bidders refer truthfully and have no incentive to underbid in GPR. Furthermore, GPR's ex-post revenue outperforms both VCG and SPA, not just in equilibrium but also when bidders do not use weakly dominated strategies.

Suggested Citation

  • Jeong, Seungwon (Eugene) & Lee, Joosung, 2024. "The groupwise-pivotal referral auction: Core-selecting referral strategy-proof mechanism," Games and Economic Behavior, Elsevier, vol. 143(C), pages 191-203.
    • Handle: RePEc:eee:gamebe:v:143:y:2024:i:c:p:191-203
    DOI: 10.1016/j.geb.2023.11.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825623001847
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.geb.2023.11.012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    2. Chander, Parkash & Wooders, Myrna, 2020. "Subgame-perfect cooperation in an extensive game," Journal of Economic Theory, Elsevier, vol. 187(C).
    3. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-438, March.
    4. Ken Binmore & Paul Klemperer, 2002. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economic Journal, Royal Economic Society, vol. 112(478), pages 74-96, March.
    5. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    6. Ausubel Lawrence M & Milgrom Paul R, 2002. "Ascending Auctions with Package Bidding," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-44, August.
    7. Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2018. "Selling through referrals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 669-685, October.
    8. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    9. Robert Day & Paul Milgrom, 2008. "Core-selecting package auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 36(3), pages 393-407, March.
    10. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, University Library of Munich, Germany, revised 28 Apr 1998.
    11. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    12. , K. & ,, 2016. "On the impossibility of core-selecting auctions," Theoretical Economics, Econometric Society, vol. 11(1), January.
    13. Seungwon (Eugene) Jeong, 2020. "On the core of auctions with externalities: stability and fairness," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1093-1107, December.
    14. Tilman B?rgers & Ingemar Cox & Martin Pesendorfer & Vaclav Petricek, 2013. "Equilibrium Bids in Sponsored Search Auctions: Theory and Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 163-187, November.
    15. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    16. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
    17. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    18. Robert W. Day & Peter Cramton, 2012. "Quadratic Core-Selecting Payment Rules for Combinatorial Auctions," Operations Research, INFORMS, vol. 60(3), pages 588-603, June.
    19. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    20. Leduc, Matt V. & Jackson, Matthew O. & Johari, Ramesh, 2017. "Pricing and referrals in diffusion on networks," Games and Economic Behavior, Elsevier, vol. 104(C), pages 568-594.
    21. Seiji Takanashi & Takehiro Kawasaki & Taiki Todo & Makoto Yokoo, 2019. "Efficiency in Truthful Auctions via a Social Network," Papers 1904.12422, arXiv.org.
    22. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
    23. Tilman Börgers & Christian Dustmann, 2005. "Strange Bids: Bidding Behaviour in the United Kingdom's Third Generation Spectrum Auction," Economic Journal, Royal Economic Society, vol. 115(505), pages 551-578, July.
    24. Robert W. Day & S. Raghavan, 2007. "Fair Payments for Efficient Allocations in Public Sector Combinatorial Auctions," Management Science, INFORMS, vol. 53(9), pages 1389-1406, September.
    25. Karla Hoffman & Dinesh Menon, 2010. "A Practical Combinatorial Clock Exchange for Spectrum Licenses," Decision Analysis, INFORMS, vol. 7(1), pages 58-77, March.
    26. Daniele Condorelli & Andrea Galeotti & Ludovic Renou, 2017. "Bilateral Trading in Networks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 82-105.
    27. Lawrence M. Ausubel & Oleg Baranov, 2020. "Core-selecting auctions with incomplete information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(1), pages 251-273, March.
    28. Takehiro Kawasaki & Nathanael Barrot & Seiji Takanashi & Taiki Todo & Makoto Yokoo, 2019. "Strategy-Proof and Non-Wasteful Multi-Unit Auction via Social Network," Papers 1911.08809, arXiv.org.
    29. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
    30. Paul Milgrom, 2007. "Package Auctions and Exchanges," Econometrica, Econometric Society, vol. 75(4), pages 935-965, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ryuji Sano, 2018. "An equilibrium analysis of a core-selecting package auction with reserve prices," Review of Economic Design, Springer;Society for Economic Design, vol. 22(3), pages 101-122, December.
    2. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    3. Benedikt Bünz & Benjamin Lubin & Sven Seuken, 2022. "Designing Core-Selecting Payment Rules: A Computational Search Approach," Information Systems Research, INFORMS, vol. 33(4), pages 1157-1173, December.
    4. Committee, Nobel Prize, 2020. "Improvements to auction theory and inventions of new auction formats," Nobel Prize in Economics documents 2020-2, Nobel Prize Committee.
    5. , K. & ,, 2016. "On the impossibility of core-selecting auctions," Theoretical Economics, Econometric Society, vol. 11(1), January.
    6. Blumrosen, Liad & Solan, Eilon, 2023. "Selling spectrum in the presence of shared networks: The case of the Israeli 5G auction," Telecommunications Policy, Elsevier, vol. 47(2).
    7. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 541-571.
    8. Mochon, A. & Saez, Y. & Gomez-Barroso, J.L. & Isasi, P., 2012. "Exploring pricing rules in combinatorial sealed-bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 462-478.
    9. Ryuji Sano, 2015. "Improving Efficiency Using Reserve Prices: An Equilibrium Analysis of Core-Selecting Auctions," KIER Working Papers 926, Kyoto University, Institute of Economic Research.
    10. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    11. M. Yenmez, 2015. "Incentive compatible market design with applications," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 543-569, August.
    12. Paul Karaenke & Martin Bichler & Stefan Minner, 2019. "Coordination Is Hard: Electronic Auction Mechanisms for Increased Efficiency in Transportation Logistics," Management Science, INFORMS, vol. 65(12), pages 5884-5900, December.
    13. Lamprirni Zarpala & Dimitris Voliotis, 2022. "A core-selecting auction for portfolio's packages," Papers 2206.11516, arXiv.org, revised Feb 2024.
    14. Corchón, Luis C., 2008. "The theory of implementation : what did we learn?," UC3M Working papers. Economics we081207, Universidad Carlos III de Madrid. Departamento de Economía.
    15. Kemal Guler & Martin Bichler & Ioannis Petrakis, 2016. "Ascending Combinatorial Auctions with Risk Averse Bidders," Group Decision and Negotiation, Springer, vol. 25(3), pages 609-639, May.
    16. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, University Library of Munich, Germany, revised 28 Apr 1998.
    17. Sano, Ryuji, 2013. "Vickrey-reserve auctions and an equilibrium equivalence," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 112-117.
    18. Lawrence M. Ausubel & Oleg Baranov, 2020. "Core-selecting auctions with incomplete information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(1), pages 251-273, March.
    19. Francisco Robles, 2016. "An implementation of the Vickrey outcome with gross-substitutes," UB School of Economics Working Papers 2016/353, University of Barcelona School of Economics.
    20. Kazumura, Tomoya & Mishra, Debasis & Serizawa, Shigehiro, 2020. "Mechanism design without quasilinearity," Theoretical Economics, Econometric Society, vol. 15(2), May.

    More about this item

    Keywords

    Referral network; Referral strategy-proofness; Budget feasibility; Core; Shill-proofness; Groupwise collusion-proofness; Referrer's dilemma;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:143:y:2024:i:c:p:191-203. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.