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Approximately Efficient Bilateral Trade

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  • Yuan Deng
  • Jieming Mao
  • Balasubramanian Sivan
  • Kangning Wang

Abstract

We study bilateral trade between two strategic agents. The celebrated result of Myerson and Satterthwaite states that in general, no incentive-compatible, individually rational and weakly budget balanced mechanism can be efficient. I.e., no mechanism with these properties can guarantee a trade whenever buyer value exceeds seller cost. Given this, a natural question is whether there exists a mechanism with these properties that guarantees a constant fraction of the first-best gains-from-trade, namely a constant fraction of the gains-from-trade attainable whenever buyer's value weakly exceeds seller's cost. In this work, we positively resolve this long-standing open question on constant-factor approximation, mentioned in several previous works, using a simple mechanism.

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  • Yuan Deng & Jieming Mao & Balasubramanian Sivan & Kangning Wang, 2021. "Approximately Efficient Bilateral Trade," Papers 2111.03611, arXiv.org.
    • Handle: RePEc:arx:papers:2111.03611
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    File URL: http://arxiv.org/pdf/2111.03611
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