Approximately Efficient Bilateral Trade

Yuan Deng, Jieming Mao, Balasubramanian Sivan and Kangning Wang

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Abstract: We study bilateral trade between two strategic agents. The celebrated result of Myerson and Satterthwaite states that in general, no incentive-compatible, individually rational and weakly budget balanced mechanism can be efficient. I.e., no mechanism with these properties can guarantee a trade whenever buyer value exceeds seller cost. Given this, a natural question is whether there exists a mechanism with these properties that guarantees a constant fraction of the first-best gains-from-trade, namely a constant fraction of the gains-from-trade attainable whenever buyer's value weakly exceeds seller's cost. In this work, we positively resolve this long-standing open question on constant-factor approximation, mentioned in several previous works, using a simple mechanism.

Date: 2021-11
New Economics Papers: this item is included in nep-des, nep-int, nep-mic and nep-ore
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