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Title: Auctions with Untrustworthy Bidders
Authors: Braynov, Sviatoslav
Pavlov, Radoslav
Keywords: Auctions
Mechanism Design
Issue Date: 2007
Publisher: Institute of Mathematics and Informatics Bulgarian Academy of Sciences
Citation: Serdica Journal of Computing, Vol. 1, No 3, (2007), 293p-312p
Abstract: The paper analyzes auctions which are not completely enforceable. In such auctions, economic agents may fail to carry out their obligations, and parties involved cannot rely on external enforcement or control mechanisms for backing up a transaction. We propose two mechanisms that make bidders directly or indirectly reveal their trustworthiness. The first mechanism is based on discriminating bidding schedules that separate trustworthy from untrustworthy bidders. The second mechanism is a generalization of the Vickrey auction to the case of untrustworthy bidders. We prove that, if the winner is considered to have the trustworthiness of the second-highest bidder, truthfully declaring one's trustworthiness becomes a dominant strategy. We expect the proposed mechanisms to reduce the cost of trust management and to help agent designers avoid many market failures caused by lack of trust.
ISSN: 1312-6555
Appears in Collections:Volume 1 Number 3

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