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We consider an single object auction environment with interdependent valuations and a generalized Vickrey–Clark–Groves allocation mechanism that allocates the object almost eﬀiciently in a strict ex post equilibrium. If there is a signiﬁcant amount of interdependence, there are multiple rationalizable outcomes of this direct mechanism and any other mechanism that allocates the object almost eﬀiciently. This is true whether the agents know about each others’ payoﬀ types or not. We consider an ascending price dynamic version of the generalized VCG mechanism. When there is complete information among the agents of their payoﬀ types, we show that the almost eﬀicient allocation is the unique backward induction (i.e., extensive form rationalizable) outcome of the auction, even when there are multiple rationalizable outcomes in the static version. This example illustrates the role that open auctions may play in obtaining eﬀicient allocations by reducing strategic uncertainty.
Bergemann, Dirk and Morris, Stephen, "An Ascending Auction for Interdependent Values: Uniqueness and Robustness to Strategic Uncertainty" (2007). Cowles Foundation Discussion Papers. 1893.