SummaryWe study the cloud resource auction problem where users can bid for resource bundle containing heterogeneous types of virtual machines, and providers allocate virtual machines to their users through group price model. Compared with fixed price model, which is not always the best approach for trading resources as its economically inefficient and inflexible nature, the group price model possess the better flexibility and monetary benefits for auction participants (e.g., cloud providers and users). The proposed auction mechanism strategy‐proof group buying‐based auction mechanism, which formulates the problem of virtual machine allocation in clouds as a combinatorial auction problem, and holds some important property such as individual rationality, ex‐post budget balance, and truthfulness, meanwhile guaranteeing efficiency in both the provider's revenue and system efficiency. Extensive simulation results show that the proposed mechanism yields the allocation efficiency and computational tractability compared with the mechanism with fixed price model. Copyright © 2015 John Wiley & Sons, Ltd.