4- VCG Auctions

Question 1

What are the 3 steps of a VCG auction?

Answer 1

-Each bidder submits bid function
-Assignment is one that maximises social value
-Each bidder pays the externality she imposes on the other bidders

Question 2

What is a bidder’s valuation in a VCG auction?

Answer 2

How much the bidder is willing to pay for a subset of the items being sold

Question 3

What is the assignment of interest (μ*)?

Answer 3

The assignment that maximises social value- sum of valuations must be greater than or equal to every other assignment

Question 4

How do you workout the price paid by a bidder in a VCG auction?

Answer 4

Others’ social value without bidder minus others’ social value with bidder

Question 5

What is the dominant bidding strategy in a VCG auction?

Answer 5

Truthful bidding (strategyproof)

Question 6

What are the 2 main problems with VCG auctions?

Answer 6

-Need to find assignment maximising social welfare and there could be millions of possible assignments
-Bidders need to submit valuations for all subsets which could be millions too