Extending pricing mechanisms affects buyer payoffs and prices
Extending Mechanisms
Computer Science and Game Theory
Summary
When selling something, sometimes the way prices are set works only for certain buyers. The paper looks at how to change these pricing rules so they work for everyone. They find two main ways to do this: one that lowers what buyers can gain but keeps prices as high as possible, and another that makes buyers as happy as possible while keeping prices low. This helps understand trade-offs in setting prices fairly.
What this means in practice
- •For auction designers: Design pricing rules that extend from restricted buyer types to all buyer valuations with predictable effects on payoffs and prices.
- •For pricing strategists: Adjust single-agent pricing mechanisms to balance buyer satisfaction and seller revenue across all buyer preferences.
A theory result. No direct application yet.
Authors
Sergiu Hart, Noam Nisan
Abstract
Given an incentive-compatible mechanism for a single agent on a restricted domain of valuations, we consider its incentive-compatible extensions to the entire valuation space. We identify two extreme extensions: the "keep-the-menu" extension, which minimizes buyer payoffs and maximizes canonical prices pointwise, and the "keep-the-pricing" extension, which maximizes buyer payoffs and minimizes canonical prices pointwise.