Incentive-Compatible Diffusion Combinatorial Auctions

Abstract

The diffusion auction is an emerging auction model which leverages social networks to recruit more buyers, thereby improving auction revenue and allocation efficiency. Previous studies on diffusion auctions have primarily focused on the single-parameter domain, where each buyer's valuation function is represented by a single private value. However, due to the complex interdependencies between allocations and network structures, few studies have examined the combinatorial auction domain, in which buyers' valuation functions exhibit multidimensionality. In this paper, we fully characterize implementable diffusion mechanisms within the combinatorial auction domain for the first time. Based on the characterization, we identify a class of allocation policies for each of which the optimal payment, namely the one maximizing the seller's revenue, can be derived in closed form. Furthermore, we apply the established theory to design a practical diffusion combinatorial auction, named the Exhausted-Reference Pricing Mechanism, which is incentive-compatible, individually rational, and weakly budget balanced.