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Auctions with online supply

Author

Listed:
  • Babaioff, Moshe
  • Blumrosen, Liad
  • Roth, Aaron

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.

Suggested Citation

  • Babaioff, Moshe & Blumrosen, Liad & Roth, Aaron, 2015. "Auctions with online supply," Games and Economic Behavior, Elsevier, vol. 90(C), pages 227-246.
    • Handle: RePEc:eee:gamebe:v:90:y:2015:i:c:p:227-246
    DOI: 10.1016/j.geb.2015.01.004
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    References listed on IDEAS

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    1. Dirk Bergemann & Maher Said, 2010. "Dynamic Auctions: A Survey," Cowles Foundation Discussion Papers 1757, Cowles Foundation for Research in Economics, Yale University.
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    3. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    8. Jason D. Hartline, 2012. "Approximation in Mechanism Design," American Economic Review, American Economic Association, vol. 102(3), pages 330-336, May.
    9. Alex Gershkov & Benny Moldovanu, 2009. "Learning about the Future and Dynamic Efficiency," American Economic Review, American Economic Association, vol. 99(4), pages 1576-1587, September.
    10. Gershkov, Alex & Moldovanu, Benny, 2012. "Optimal search, learning and implementation," Journal of Economic Theory, Elsevier, vol. 147(3), pages 881-909.
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    Cited by:

    1. Ninoslav Malekovic & Lazaros Goutas & Juliana Sutanto & Dennis Galletta, 2020. "Regret under different auction designs: the case of English and Dutch auctions," Electronic Markets, Springer;IIM University of St. Gallen, vol. 30(1), pages 151-161, March.

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    More about this item

    Keywords

    Dynamic auctions; Unknown supply; Online auctions; Approximation; Dynamic mechanism design; Stochastic supply;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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