A Generalized Vickrey Auction

Abstract

In auction environments where bidders have pure private values, the Vickrey auction (Vickrey, 1961) provides a simple mechanism for efficiently allocating homogeneous goods. However, in environments where bidders have interdependent values, the Vickrey auction does not generally yield efficiency. This manuscript defines a "generalized Vickrey auction" which yields efficiency when bidders have interdependent values. Each bidder reports her type to the auctioneer. Given the reports, the auctioneer determines the allocation that maximizes surplus. The payment rule is the following extension of Vickrey auction pricing: a bidder is charged for a given unit that she wins according to valuations evaluated at the minimum signal that she could have reported and still won that unit.