Note on the applicability of the VCG mechanism to capacitated assignment problems and extensions

Reinder B. Lok, Dolores Romero Morales and Dries Vermeulen

Statistica Neerlandica, 2007, vol. 61, issue 1, 156-171

Abstract: For the allocation of heterogeneous items, it is known that the buyers‐are‐substitutes condition is necessary and sufficient to ensure that a pricing equilibrium can yield the same allocation and payments as the VCG mechanism. Furthermore, concavity of the corresponding transferable utility TU‐game guarantees that this VCG outcome can also be achieved by an ascending price auction. We show that concavity, and hence the buyers‐are‐substitutes condition, holds for the TU‐game of the assignment problem with general capacities. Therefore, the VCG mechanism is supported by a pricing equilibrium which can also be achieved by an ascending auction. We also show that the buyers‐are‐substitutes condition, and hence concavity, does not hold anymore for very natural and straightforward extensions of this problem. This shows that the necessity of the substitutes property is a considerable restriction on the applicability of the VCG mechanism.

Date: 2007
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