Comments on: Thirteen Reasons Why the Vickrey-Clarke-Groves Process is Not Practical http://orforum.blog.informs.org/2007/04/17/thirteen-reasons/ Wed, 26 Aug 2009 14:12:16 -0400 http://wordpress.org/?v=2.8.4 hourly 1 By: P.J. Healy http://orforum.blog.informs.org/2007/04/17/thirteen-reasons/comment-page-1/#comment-2 P.J. Healy Mon, 12 Mar 2007 19:51:06 +0000 http://orforum.blog.informs.org/2007/04/17/thirteen-reasons-why-the-vickrey-clarke-groves-process-is-not-practical/#comment-2 Professor Rothkopf is correct; other Nash equilibria of the VCG auction, though still efficient, can lead to different revenue levels for the seller. For an efficiency-minded economist it doesn't matter who pays what to whom, as long as the object goes to the bidder with the highest value. But to a seller choosing the auction format, expected revenue is obviously a big deal, and this will impact the choice of auction format. Note, however, that revenue may go either way here: there are also Nash equilibria that lead to higher revenues than the dominant strategy equilibrium (for example, the high-value bidder bids his value v and everyone else bids a penny less than v; also, see Andreas Blume's papers characterizing all Nash equilibria of VCG auctions). So, we're back to the age-old equilibrium selection problem, and running experiments (laboratory or field) seems to be the sensible approach to figure out what revenue sellers should really expect. Professor Rothkopf is correct; other Nash equilibria of the VCG auction, though still efficient, can lead to different revenue levels for the seller. For an efficiency-minded economist it doesn’t matter who pays what to whom, as long as the object goes to the bidder with the highest value. But to a seller choosing the auction format, expected revenue is obviously a big deal, and this will impact the choice of auction format.
Note, however, that revenue may go either way here: there are also Nash equilibria that lead to higher revenues than the dominant strategy equilibrium (for example, the high-value bidder bids his value v and everyone else bids a penny less than v; also, see Andreas Blume’s papers characterizing all Nash equilibria of VCG auctions). So, we’re back to the age-old equilibrium selection problem, and running experiments (laboratory or field) seems to be the sensible approach to figure out what revenue sellers should really expect.

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