I wrote a small piece that might provide some intuition on the usefulness of VCG auctions
https://medium.com/@bwasti/mechanism-design-a8ff1b1a7bdd
Say I am looking for a contractor to renovate my house. I don't know the actual cost or the skill of any of the contractors who are applying for the job.
Is it best to say, whoever will give me the lowest price is the person I will choose, and I will pay them the second-lowest price?
The biggest issue here is that when selling a product, every potential buyer will get the same product. However, when buying a service, not every provider will necessarily provide the exact same service.
1 knows exactly how difficult it will be.
2 charge that cost for how difficult it will be.
3. Maybe avoid having anyone get the winners curse.
So I was wondering if this reverse auction would do that?
A) knowing that in this auction, optimal play is bidding actual value
B) All contractors need to be confident all other contractors know this. Because one contractor that doesn't, who underbids, will win the auction but suffer the winners curse.
It should be noted that, in auction theory, even a normal first-price auction should not suffer the winners curse. Because it is still irrational to make a bid that will lead to a loss. As such, maybe auction theory isn't the place to look for a solution to this problem.