Abstract
We introduce endogenous fees for participating in second-price auction which we use for a two-stage mechanism to solve King Solomon’s dilemma. They are positive for all agents. They are nonetheless shown to maintain the agents’ incentives for truthful bidding and guarantee participation by the highest-value agent. This feature of the endogenous fees is powerful enough for the efficient outcome to uniquely result from one round elimination of weakly dominated strategies, followed by at most four rounds of iterative elimination of strictly dominated stage-strategies. We provide an extension to cases with n agents and k identical prizes.
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We thank Gary Charness, Harrison Cheng, Jeffrey Ely, Rod Garratt, Mamoru Kaneko, Xiao Luo, Albert Ma, and Steven Morris for helpful discussions. We also thank an anonymous referee for comments that have helped to improve the paper.
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Qin, CZ., Yang, CL. Make a guess: a robust mechanism for King Solomon’s dilemma. Econ Theory 39, 259–268 (2009). https://doi.org/10.1007/s00199-007-0304-x
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DOI: https://doi.org/10.1007/s00199-007-0304-x
Keywords
- King Solomon’s dilemma
- Mechanism design
- Vickrey auction
- Dekel-Fudenberg procedure
- Iterative conditional dominance
- Information robustness