Supply-limiting mechanisms

Authors:
Tim Roughgarden;Inbal Talgam-Cohen;Qiqi Yan
Affiliations:
Stanford University, Stanford, CA, USA;Stanford University, Stanford, CA, USA;Stanford University, Stanford, CA, USA
Venue:
Proceedings of the 13th ACM Conference on Electronic Commerce
Year:
2012

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Abstract

Most results in revenue-maximizing auction design hinge on "getting the price right" --- offering goods to bidders at a price low enough to encourage a sale, but high enough to garner non-trivial revenue. Getting the price right can be hard work, especially when the seller has little or no a priori information about bidders' valuations. A simple alternative approach is to "let the market do the work", and have prices emerge from competition for scarce goods. The simplest-imaginable implementation of this idea is the following: first, if necessary, impose an artificial limit on the number of goods that can be sold; second, run the welfare-maximizing VCG mechanism subject to this limit. We prove that such "supply-limiting mechanisms" achieve near-optimal expected revenue in a range of single- and multi-parameter Bayesian settings. Indeed, despite their simplicity, we prove that they essentially match the state-of-the-art in prior-independent mechanism design.