Prior-Independent Optimal Auctions

Amine Allouah () and Omar Besbes ()
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Amine Allouah: Graduate School of Business, Columbia University, New York, New York 10027
Omar Besbes: Graduate School of Business, Columbia University, New York, New York 10027

Management Science, 2020, vol. 66, issue 10, 4417-4432

Abstract: Auctions are widely used in practice. Although auctions are also extensively studied in the literature, most of the developments rely on the significant common prior assumption. We study the design of optimal prior-independent selling mechanisms: buyers do not have any information about their competitors, and the seller does not know the distribution of values but only knows a general class to which it belongs. Anchored on the canonical model of buyers with independent and identically distributed values, we analyze a competitive ratio objective in which the seller attempts to optimize the worst-case fraction of revenues garnered compared with those of an oracle with knowledge of the distribution. We characterize properties of optimal mechanisms and in turn establish fundamental impossibility results through upper bounds on the maximin ratio. By also deriving lower bounds on the maximin ratio, we are able to crisply characterize the optimal performance for a spectrum of families of distributions. In particular, our results imply that a second price auction is an optimal mechanism when the seller only knows that the distribution of buyers has a monotone nondecreasing hazard rate, and it guarantees at least 71.53% of oracle revenues against any distribution within this class. Furthermore, a second price auction is near optimal when the class of admissible distributions is that of those with nondecreasing virtual value function (a.k.a. regular). Under this class, it guarantees a fraction of 50% of oracle revenues, and no mechanism can guarantee more than 55.6%.

Keywords: optimal auctions; limited information; prior-independent; robust mechanism design; competitive ratio; dominant-strategy incentive compatibility; regular distributions; monotone hazard rate distributions (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:66:y:2020:i:10:p:4417-4432

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