Dynamic auctions with bank accounts

Abstract

Consider a buyer with independent additive valuations for a set of goods, and a seller who is constrained to sell one item at a time in an online fashion. If the seller is constrained to run independent auctions for each item, then he would run Myerson's optimal auction for each item. If the seller is allowed to use the full power of dynamic mechanism design and have the auction for each item depend on the outcome of the previous auctions, he is able to perform much better. The main issues in implementing such strategies in online settings where items arrive over time are that the auction might be too complicated or it makes too strong assumptions on the buyer's rationality or seller's commitment over time. This motivates us to explore a restricted family of dynamic auctions that can be implemented in an online fashion and without too much commitment from the seller ahead of time. In particular, we study a set of auction in which the space of single-shot auctions is augmented with a structure that we call bank account, a real number for each node that summarizes the history so far. This structure allows the seller to store deficits or surpluses of buyer utility from each individual auction and even them out on the long run. This is akin to enforcing individual rationality constraint on average rather than per auction. We also study the effect of enforcing a maximum limit to the values that bank account might grow, which means that we enforce that besides the auction being individually rational on average it is also not far from being individually rational at any given interval. Interestingly, even with these restrictions, we can achieve significantly better revenue and social welfare compared to separate Myerson auctions.

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