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Approximately optimal auctions for correlated bidders

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  • Dobzinski, Shahar
  • Fu, Hu
  • Kleinberg, Robert

Abstract

We consider the design of dominant strategy incentive compatible, revenue-maximizing auctions for an indivisible good, when bidders' values are drawn from a correlated distribution. For independent distributions, Myerson showed that the optimal auction for risk-neutral bidders remains incentive compatible regardless of bidders' risk attitudes. We show that, for correlated distributions, the same is true when only two bidders are involved, whereas for more bidders, randomization can generate strictly more revenue. However, for risk-neutral bidders, we show this gain is never more than a 53-factor.

Suggested Citation

  • Dobzinski, Shahar & Fu, Hu & Kleinberg, Robert, 2015. "Approximately optimal auctions for correlated bidders," Games and Economic Behavior, Elsevier, vol. 92(C), pages 349-369.
    • Handle: RePEc:eee:gamebe:v:92:y:2015:i:c:p:349-369
    DOI: 10.1016/j.geb.2013.03.010
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    References listed on IDEAS

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    4. Miller, Nolan H. & Pratt, John W. & Zeckhauser, Richard J. & Johnson, Scott, 2007. "Mechanism design with multidimensional, continuous types and interdependent valuations," Journal of Economic Theory, Elsevier, vol. 136(1), pages 476-496, September.
    5. Mark Armstrong, 2000. "Optimal Multi-Object Auctions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(3), pages 455-481.
    6. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    More about this item

    Keywords

    Bayesian mechanism design; Approximation Algorithms;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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