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Thirteen Reasons Why the Vickrey-Clarke-Groves Process is Not Practical April 17, 2007

Posted by Michael Trick in : Auctions 2007 , comments closed

In the March - April 2007 issue of Operations Research, Michael Rothkopf of Rutgers University argues that the well-known Vickrey-Clarke-Groves process for auctions is not practical. The abstract reads:

In theory, the mathematically elegant Vickrey-Clarke-Groves process offers perfect efficiency with dominant truth-revealing strategies. However, it has many serious practical problems. This paper describes these problems and argues that research that aims to maintain the dominant truth-revealing strategies while compromising on the other practical issues is of limited practical value.

Rothkopf goes on to discuss thirteen reasons for this limited value. These are

  • the fact that the dominant strategy equilibrium is a weak equilibrium and there may exist alternative weak equilibria,
  • the nonexistence of dominant strategy equilibria in models that include reasonable bid preparation costs,
  • the exponential growth of effort related to bid preparation and bid communication,
  • the NP completeness of the winner determination problem,
  • problems related to capital limited bidders,
  • problems associated with the disclosure of valuable confidential information,
  • problems associated with various kinds of cheating including
    • false bids by the bid taker,
    • conspiracies by competing bidders,
    • conspiracies in two-sided markets between bidders offering to sell and those offering to buy,
    • and the use of false name bids by single bidders,
  • the fact that strategies in sequences of strategy-proof auctions may not be strategy-proof,
  • and the fact that the process can be revenue deficient.

You can find the entire article here.

The editors of Operations Research have invited three researchers to provide commentary on this paper:
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