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Prior-Independent Optimal Auctions

Author

Listed:
  • Amine Allouah

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Omar Besbes

    (Graduate School of Business, Columbia University, New York, New York 10027)

Abstract

Auctions are widely used in practice. Although auctions are also extensively studied in the literature, most of the developments rely on the significant common prior assumption. We study the design of optimal prior-independent selling mechanisms: buyers do not have any information about their competitors, and the seller does not know the distribution of values but only knows a general class to which it belongs. Anchored on the canonical model of buyers with independent and identically distributed values, we analyze a competitive ratio objective in which the seller attempts to optimize the worst-case fraction of revenues garnered compared with those of an oracle with knowledge of the distribution. We characterize properties of optimal mechanisms and in turn establish fundamental impossibility results through upper bounds on the maximin ratio. By also deriving lower bounds on the maximin ratio, we are able to crisply characterize the optimal performance for a spectrum of families of distributions. In particular, our results imply that a second price auction is an optimal mechanism when the seller only knows that the distribution of buyers has a monotone nondecreasing hazard rate, and it guarantees at least 71.53% of oracle revenues against any distribution within this class. Furthermore, a second price auction is near optimal when the class of admissible distributions is that of those with nondecreasing virtual value function (a.k.a. regular). Under this class, it guarantees a fraction of 50% of oracle revenues, and no mechanism can guarantee more than 55.6%.

Suggested Citation

  • Amine Allouah & Omar Besbes, 2020. "Prior-Independent Optimal Auctions," Management Science, INFORMS, vol. 66(10), pages 4417-4432, October.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:10:p:4417-4432
    DOI: 10.1287/mnsc.2019.3459
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    References listed on IDEAS

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    Cited by:

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    2. Han, Jun & Weber, Thomas A., 2023. "Price discrimination with robust beliefs," European Journal of Operational Research, Elsevier, vol. 306(2), pages 795-809.
    3. Dirk Bergemann & Tan Gan & Yingkai Li, 2023. "Managing Persuasion Robustly: The Optimality of Quota Rules," Papers 2310.10024, arXiv.org.
    4. Renato Paes Leme & Balasubramanian Sivan & Yifeng Teng & Pratik Worah, 2023. "Description Complexity of Regular Distributions," Papers 2305.05590, arXiv.org.
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    7. Pieter Kleer & Johan van Leeuwaarden, 2022. "Optimal Stopping Theory for a Distributionally Robust Seller," Papers 2206.02477, arXiv.org, revised Jun 2022.

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