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Welfare maximization with production costs: A primal dual approach

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  • Huang, Zhiyi
  • Kim, Anthony

Abstract

We study online auctions with production costs using an online primal dual framework. The seller allocates items to buyers and can produce multiple copies of each item subject to a non-decreasing marginal cost per copy. The buyers have arbitrary valuation functions and arrive one by one online in some arbitrary order. The goal is to design an online mechanism that maximizes the social welfare, that is, the sum of the buyers' values less the total production cost. For any strictly convex and differentiable production cost function, we characterize the optimal competitive ratio achievable by online mechanisms and, more generally, algorithms without incentive guarantees. We show that online posted pricing mechanisms, which are incentive compatible, can achieve competitive ratios arbitrarily close to the optimal, and construct lower bound instances on which no online algorithms, not necessarily incentive compatible, can do better.

Suggested Citation

  • Huang, Zhiyi & Kim, Anthony, 2019. "Welfare maximization with production costs: A primal dual approach," Games and Economic Behavior, Elsevier, vol. 118(C), pages 648-667.
    • Handle: RePEc:eee:gamebe:v:118:y:2019:i:c:p:648-667
    DOI: 10.1016/j.geb.2018.03.003
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    References listed on IDEAS

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    1. Dughmi, Shaddin & Vondrák, Jan, 2015. "Limitations of randomized mechanisms for combinatorial auctions," Games and Economic Behavior, Elsevier, vol. 92(C), pages 370-400.
    2. Shuchi Chawla & Jason Hartline & David Malec & Balasubramanian Sivan, 2010. "Sequential Posted Pricing and Multi-parameter Mechanism Design," Discussion Papers 1486, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    More about this item

    Keywords

    Combinatorial auctions; Online algorithms; Mechanism design; Competitive analysis; Posted pricing mechanisms; Welfare maximization;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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