ABSTRACT
Inspired by online advertisement exchange systems, we study a setting where potential buyers of a unique, indivisible good attempt to purchase from a central seller via a set of intermediaries. Each intermediary has captive buyers, and runs an auction for a 'contingent' good. Based on the outcome, the intermediary bids in a subsequent upstream auction run by the seller. In this paper, we study the equilibria and incentives of intermediaries and the central seller.
We find that combining the notion of optimal auction design with the double-marginalization arising from the presence of intermediaries yields new strategic elements not present in either setting individually: we show that in equilibrium, revenue-maximizing intermediaries will use an auction with a randomized reserve price chosen from an interval. We characterize the interval and the probability distribution from which this reserve price is chosen as a function of the distribution of buyers' types. Furthermore, we characterize the revenue maximizing auction for the central seller by taking into account the effect of his choice of mechanism on the mechanisms offered by the intermediaries. We find that the optimal reserve price offered by the seller decreases with the number of buyers (but remains strictly positive); in contrast to the classical optimal auction without intermediaries, where the reserve price is independent of the number of buyers.
- I. Ashlagi, D. Monderer, and M. Tennenholtz. Simultaneous Ad Auctions. Technical report, Technion-Israel Institute of Technology, 2008.Google Scholar
- S. Baliga and R. Vohra. Market research and market design. Advances in Theoretical Economics, 3(1):1059--1059, 2003.Google ScholarCross Ref
- L. Cabral. Introduction to industrial organization. The MIT Press, 2000.Google Scholar
- A. Fiat, A. Goldberg, J. Hartline, and A. Karlin. Competitive generalized auctions. In Proceedings of the thiry-fourth annual ACM symposium on Theory of computing, page 81. ACM, 2002. Google ScholarDigital Library
- T. Groves. Incentives in teams. Econometrica: Journal of the Econometric Society, pages 617--631, 1973.Google ScholarCross Ref
- J. Hartline and A. Karlin. Profit maximization in mechanism design. Algorithmic Game Theory, page 331, 2007.Google Scholar
- V. Krishna. Auction theory. Academic press, 2009.Google Scholar
- A. Lerner. The concept of monopoly and the measurement of monopoly power. The Review of Economic Studies, 1(3):157--175, 1934.Google ScholarCross Ref
- P. Lu, S. Teng, and C. Yu. Truthful auctions with optimal profit. Lecture Notes in Computer Science, 4286:27, 2006. Google ScholarDigital Library
- R. McAfee and J. McMillan. Bidding rings. The American Economic Review, 82(3):579--599, 1992.Google Scholar
- S. Muthukrishnan. Ad Exchanges: Research Issues. In WINE, pages 1--12. LNCS, New York 2009. Google ScholarDigital Library
- R. Myerson. Optimal auction design. Mathematics of operations research, 6(1):58--73, 1981.Google Scholar
- M. M. Pai. Competing Auctioneers. Technical report, Northwestern University, 2009.Google Scholar
- I. Segal. Optimal pricing mechanisms with unknown demand. American Economic Review, 93(3):509--529, 2003.Google ScholarCross Ref
- J. Tirole. The theory of industrial organization. MIT press,1993.Google Scholar
- W. Vickrey. Counterspeculation, auctions, and competitive sealed tenders. The Journal of Finance, 16(1):8--37, 1961.Google ScholarCross Ref
Index Terms
- Auctions with intermediaries: extended abstract
Recommendations
Optimal Auctions with Positive Network Externalities
Special Issue on Algorithmic Game TheoryWe consider the problem of designing auctions in social networks for goods that exhibit single-parameter submodular network externalities in which a bidder’s value for an outcome is a fixed private type times a known submodular function of the ...
Prior-Independent Optimal Auctions
EC '18: Proceedings of the 2018 ACM Conference on Economics and ComputationAuctions are widely used in practice. While also extensively studied in the literature, most of the developments rely on significant assumptions about common knowledge on the seller and buyers' sides. In this work, we study the design of optimal prior-...
Reserve prices in internet advertising auctions: a field experiment
EC '11: Proceedings of the 12th ACM conference on Electronic commerceWe present the results of a large field experiment on setting reserve prices in auctions for online advertisements, guided by the theory of optimal auction design suitably adapted to the sponsored search setting. Consistent with the theory, following ...
Comments