The Groupwise-Pivotal Referral Mechanism: Core-Selecting Referral Strategy-Proof Mechanism

39 Pages Posted: 21 Apr 2020 Last revised: 13 Oct 2020

Date Written: April 13, 2020

Abstract

We introduce the groupwise-pivotal referral (GPR) mechanism for auctions where buyers can participate only 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, GPR is core-selecting, implying efficiency and budget feasibility. In GPR, bidders should refer truthfully and have no incentive to underbid. GPR is shill-proof and groupwise collusion-proof. Furthermore, GPR's ex-post revenue outperforms both VCG and SPA. We also study more general environments than auctions.

Keywords: referral network, referral strategy-proofness, budget feasibility, core, shill-proofness, groupwise collusion-proofness, referrer's dilemma

JEL Classification: D44, D71, D82, L14

Suggested Citation

Jeong, Seungwon (Eugene) and Lee, Joosung, The Groupwise-Pivotal Referral Mechanism: Core-Selecting Referral Strategy-Proof Mechanism (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3574093 or http://dx.doi.org/10.2139/ssrn.3574093

Seungwon (Eugene) Jeong (Contact Author)

University of Bristol ( email )

The Priory Road Complex
Bristol, BS8 1TU
United Kingdom

HOME PAGE: http://eugenejeong.com

Joosung Lee

University of Edinburgh ( email )

Business School
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://https://sites.google.com/site/joosungecon/

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