Multidimensional Second-Price (MSP) and English Auctions

Abstract

This paper presents two novel graph-based mechanisms: the "multidimensional second-price" (MSP) and "multidimensional English" auctions. In high-stakes auctions, externalities are commonplace and create many problems. For example, the Vickrey-Clarke-Groves mechanism may require losers to pay. Standard one-dimensional auctions also have many problems, including inefficiency, individual irrationality, regret of not bidding high or low enough, and the following "group winner regret": two bidders might compete against each other unnecessarily and so have worse payoffs than if they had lost to the third bidder.

In contrast, MSP is a unique direct mechanism that is free of losers' payments, is pairwise stable, and has good incentive properties, including no group winner regret. In MSP, the winner cannot win at any lower price, and losers cannot be better off winning by misreporting. MSP is strategyproof for a bidder who does not suffer externalities, and it reduces to the second-price auction when no externalities exist.

Keywords: externalities, group winner regret, collusion, monotonicity, core, graph

JEL Classification: C78, D44, D62, D47