Competitive auctions and digital goods

Abstract

We study a class of single round, sealed bid auctions for items in unlimited supply such as digital goods. We focus on auctions that are truthful and competitive. Truthful auctions encourage bidders to bid their utility; competitive auctions yield revenue within a constant factor of the revenue for optimal fixed pricing. We show that for any truthful auction, even a multi-price auction, the expected revenue does not exceed that for optimal fixed pricing. We also give a bound on how far the revenue for optimal fixed pricing can be from the total market utility. We show that several randomized auctions are truthful and competitive under certain assumptions, and that no truthful deterministic auction is competitive. We present simulation results which confirm that our auctions compare favorably to fixed pricing. Some of our results extend to bounded supply markets, for which we also get truthful and competitive auctions.

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