Coalition-Based Pricing in Ascending Combinatorial Auctions

Abstract

Bidders in larger ascending combinatorial auctions face a substantial coordination problem, which has received little attention in the literature. The coordination problem manifests itself by the fact that losing bidders need to submit nonoverlapping package bids that are high enough to outbid the standing winners. We propose an auction format, which leverages the information that the auctioneer collects throughout the auction about the preferences of individual bidders and suggests prices for the members of losing bidder coalitions, which in total would make a given coalition winning. We model the bidder’s bundle selection problem as a coordination game, which provides a theoretical rationale for bidders to agree to these prices, and highlights the role of the auctioneer in providing relevant information feedback. Results of extensive numerical simulations and experiments with human participants demonstrate that this type of pricing substantially reduces the number of auction rounds and bids necessary to find a competitive equilibrium, and at the same time significantly increases auction efficiency in the lab. This rapid convergence is crucial for the practical viability of combinatorial auctions in larger markets. The online appendix is available at https://doi.org/10.1287/isre.2016.0681 .