2008) “Hierarchical package bidding: A paper & pencil combinatorial auction

We introduce a new combinatorial auction format based on a simple, trans-parent pricing mechanism tailored for the hierarchical package structure proposed by Rothkopf, Pekeč, and Harstad (1998) to avoid computational complexity. This combination provides the feedback necessary for bidders in multi-round auctions to discern winning bidding strategies for subsequent rounds and to coordinate re-sponses to aggressive package bids. The resulting mechanism is compared to two leading alternatives in a series of laboratory experiments involving varying degrees of value synergies. Based on these “wind tunnel ” tests the FCC has decided to use hierarchical package bidding in the major upcoming 700MHz auction