(Almost) efficient mechanisms for bilateral trading

Liad Blumrosen; Shahar Dobzinski

doi:10.1016/j.geb.2021.08.011

(Almost) efficient mechanisms for bilateral trading

Liad Blumrosen^*, Shahar Dobzinski

^*Corresponding author for this work

Business Administration

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6 Scopus citations

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
Pages (from-to)	369-383
Number of pages	15
Journal	Games and Economic Behavior
Volume	130
DOIs	https://doi.org/10.1016/j.geb.2021.08.011
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

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10.1016/j.geb.2021.08.011

Cite this

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title = "(Almost) efficient mechanisms for bilateral trading",

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.",

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author = "Liad Blumrosen and Shahar Dobzinski",

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N2 - 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.

AB - 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.

KW - Auctions

KW - Bilateral trade

KW - Budget balance

KW - Double auctions

KW - Mechanism design

KW - Two-sided markets

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DO - 10.1016/j.geb.2021.08.011

M3 - Article

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SN - 0899-8256

VL - 130

SP - 369

EP - 383

JO - Games and Economic Behavior

JF - Games and Economic Behavior

ER -

(Almost) efficient mechanisms for bilateral trading

Abstract

Bibliographical note

Keywords

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