A New Payment Rule for Core-selecting Package Auctions

Aytek Erdil and Paul Klemperer
September 2009

We propose a new, easy-to-implement, class of payment rules, "Reference Rules," to make core-selecting package auctions more robust. Small, almost-riskless, profitable deviations from "truthful bidding" are often easy for bidders to find under currently-used payment rules. Reference Rules perform better than existing rules on our marginal-incentive-to-deviate criterion, and are as robust as existing rules to large deviations. Other considerations, including fairness and comprehensibility, also support the use of Reference Rules.