Abstract
We study the bilateral trade problem: one seller, one buyer and a single, indivisible item for sale. It is well known that there is no fully-efficient and incentive compatible mechanism for this problem that maintains a balanced budget. We design simple and robust mechanisms that obtain approximate efficiency with these properties. We show that even minimal use of statistical data can yield good approximation results. We then demonstrate how a mechanism for this simple bilateral-trade problem can be used as a “black-box” for constructing mechanisms in more general environments. Finally, we show that dominant-strategy incentive-compatible mechanisms cannot guarantee any constant-factor approximation to the optimal gains from trade.
Original language | American English |
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Pages (from-to) | 369-383 |
Number of pages | 15 |
Journal | Games and Economic Behavior |
Volume | 130 |
DOIs | |
State | Published - Nov 2021 |
Bibliographical note
Funding Information:We thank Akaki Mamageishvili for pointing out a mistake in a previous draft. Liad Blumrosen was supported by grants of The Israel Science Foundation (ISF) number 230/10 and 2570/19 . Shahar Dobzinski is supported by BSF grant 2016192 and ISF grant 2185/19 .
Publisher Copyright:
© 2021
Keywords
- Auctions
- Bilateral trade
- Budget balance
- Double auctions
- Mechanism design
- Two-sided markets