Frontiers of Theoretical Economics Volume 1, Issue 1 2002 Article 1 Ascending Auctions with Package Bidding Lawrence M. Ausubel∗ Paul R. Milgrom† ∗University of Maryland,
[email protected] †Stanford University,
[email protected] Copyright c 2002 by the authors. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, elec- tronic, mechanical, photocopying, recording, or otherwise, without the prior written permis- sion of the publisher, bepress, which has been given certain exclusive rights by the author. Frontiers of Theoretical Economics is produced by The Berkeley Electronic Press (bepress). http://www.bepress.com/bejte Ascending Auctions with Package Bidding Lawrence M. Ausubel and Paul R. Milgrom Abstract A family of ascending package auction models is introduced in which bidders may determine their own packages on which to bid. In the proxy auction (revelation game) versions, the outcome is a point in the core of the exchange economy for the reported preferences. When payoffs are linear in money and goods are substitutes, sincere reporting constitutes a Nash equilibrium and the outcome coincides with the Vickrey auction outcome. Even when goods are not substitutes, ascending proxy auction equilibria lie in the core with respect to the true preferences. Compared to the Vickrey auction, the proxy auctions generate higher equilibrium revenues, are less vulnerable to shill bidding and collusion, can handle budget constraints much more robustly, and may provide better ex ante investment incentives. KEYWORDS: auction theory, FCC auctions, package bidding, combinatorial bidding, activity rule, bid Improvement rule, e-commerce, electronic commerce Ausubel and Milgrom: Ascending Package Auctions 1.