Auctions with online supply

Moshe Babaioff, Liad Blumrosen and Aaron Roth

Games and Economic Behavior, 2015, vol. 90, issue C, 227-246

Abstract: Online advertising auctions present settings in which there is uncertainty about the number of items for sale. We study mechanisms for selling identical items when the total supply is unknown but is drawn from a known distribution. Items arrive dynamically, and the seller must make immediate allocation and payment decisions with the goal of maximizing social welfare. We devise a simple incentive-compatible mechanism that guarantees some constant fraction of the first-best solution. A surprising feature of our mechanism is that it artificially limits supply, and we show that limiting the supply is essential for obtaining high social welfare. Although common when maximizing revenue, commitment to limit the supply is less intuitive when maximizing social welfare. The performance guarantee of our mechanism is in expectation over the supply distribution; We show that obtaining similar performance guarantee for every realization of supply is impossible.

Keywords: Dynamic auctions; Unknown supply; Online auctions; Approximation; Dynamic mechanism design; Stochastic supply (search for similar items in EconPapers)
JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:90:y:2015:i:c:p:227-246

DOI: 10.1016/j.geb.2015.01.004

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