Vickrey–Clarke–Groves auction
Type of sealed-bid multiple-item auction / From Wikipedia, the free encyclopedia
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A Vickrey–Clarke–Groves (VCG) auction is a type of sealed-bid auction of multiple items. Bidders submit bids that report their valuations for the items, without knowing the bids of the other bidders. The auction system assigns the items in a socially optimal manner: it charges each individual the harm they cause to other bidders.[1] It gives bidders an incentive to bid their true valuations, by ensuring that the optimal strategy for each bidder is to bid their true valuations of the items; it can be undermined by bidder collusion and in particular in some circumstances by a single bidder making multiple bids under different names. It is a generalization of a Vickrey auction for multiple items.
The auction is named after William Vickrey,[2] Edward H. Clarke,[3] and Theodore Groves[4] for their papers that successively generalized the idea.
The VCG auction is a specific use of the more general VCG mechanism. While the VCG auction tries to make a socially optimal allocation of items, VCG mechanisms allow for the selection of a socially optimal outcome out of a set of possible outcomes. If collusion is likely to occur among bidders, the VCG outperforms the generalized second-price auction for both revenues produced for the seller and allocative efficiency.[5]