Inefficiency of equilibria in digital mechanisms with continuous valuations
AbstractA digital mechanism is defined as an iterative procedure in which bidders select an action, from a finite set, in each iteration. When bidders have continuous valuations and make strategic reports, we show that any ex post implementation of the Vickrey choice rule via such a mechanism needs infinitely many iterations for almost all realizations of the bidders’ valuations. Thus, when valuations are drawn from a continuous probability distribution, the Vickrey choice rule can only be used at the expense of a running time that is infinite with probability one. This infeasibility result even holds in the case of two bidders and the Vickrey choice rule only being required to be established with probability one. Establishing the efficient allocation when the n bidders’ report truthfully contrasts starkly to the previous setting: a bisection procedure has a finite running time almost always, and an expected number of reports are equal to 2n. Using a Groves payment scheme rather than Vickrey’s second price payment scheme somewhat mitigates the problem. We provide an example mechanism with a Groves payment scheme, in which the running time of the mechanism in equilibrium is finite with probability 12.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 47 (2011)
Issue (Month): 4-5 ()
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Web page: http://www.elsevier.com/locate/jmateco
Mechanisms; Ex post equilibrium; Efficiency;
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