The groupwise-pivotal referral auction: Core-selecting referral strategy-proof mechanism

Abstract

We introduce the groupwise-pivotal referral (GPR) mechanism for auctions where buyers can participate through referrals. Each buyer's type consists of a valuation and referable buyers. Unlike the second-price auction (SPA), the Vickrey-Clarke-Groves (VCG) mechanism provides referral incentives. However, VCG is not budget-feasible. In contrast, under complete information, GPR is core-selecting, implying efficiency and budget feasibility. Under incomplete information, bidders refer truthfully and have no incentive to underbid in GPR. Furthermore, GPR's ex-post revenue outperforms both VCG and SPA, not just in equilibrium but also when bidders do not use weakly dominated strategies.