An efficient multi-item dynamic auction with budget constrained bidders

An auctioneer wishes to sell several heterogeneous indivisible items to a group of potential bidders. Each bidder has valuations over the items but may face a budget constraint and therefore be unable to pay up to his values. In such markets, a Walrasian equilibrium may fail to exist. We develop a novel dynamic auction and prove that the auction always finds a core allocation. In the auction prices that have been increased can be later decreased if they have become too high. The core allocation consists of an assignment of the items and its associated supporting price vector, achieves Pareto efficiency, and is robust against the threat of deviation by any coalition of market participants.