Mechanism design achieves threefold approximate consumer surplus
Artificial Currency and Separate Selling: A 3-Approximation for Consumer Surplus
Computer Science and Game Theory
Summary
This paper looks at how to give people different items based on how much they value them when those values are uncertain. The authors study a system where buyers receive fake money they can use only inside the system to bid on items. They show that using either selling items separately or this fake money system gets close to the best possible total happiness for buyers. Combining these two methods guarantees a result within three times the best, no matter how the buyers behave strategically. The proof breaks down the total value into parts that each method can handle well.
What this means in practice
- •For online marketplace designers: Design selling mechanisms that guarantee a near-optimal buyer surplus using simple bidding budgets or separate sales even with strategic buyers.
- •For digital advertising auction teams: Implement bidding systems with artificial currency budgets that assure consistent consumer surplus approximation despite varying bidder strategies.
A theory result. No direct application yet.
Authors
Yang Cai, Yingkai Li, Jinzhao Wu
Abstract
We study the allocation of indivisible items to buyers with additive values drawn from independent distributions. The objective is consumer surplus net of burnt payments. We consider artificial-currency mechanisms: buyers receive personalized budgets of a currency worthless outside the mechanism and use them to bid across items. The better of separate selling and artificial-currency mechanisms provides a 3-approximation to optimal consumer surplus. The guarantee holds at every Bayes--Nash equilibrium, without equilibrium selection. Both branches are necessary: either alone may capture only a vanishing share of the optimum. The proof decomposes benchmark surplus into a stable part captured by artificial currency and a variation covered by separate selling.