A Simple Auction for Early Delivery of High-Demand Products

Abstract

Companies face an important challenge in deciding the allocation and pricing of high-demand products when they can supply them only in limited quantities, especially during initial releases. Instead of traditional means, letting free market mechanisms like auctions solve this problem can lead to more efficient outcomes. The Generalized Vickrey Auction (GVA) occupies a prominent place in auction theory because of its allocative efficiency and incentive properties. But implementing the GVA requires the auctioneer to solve n + 1 optimization problems, where n is the number of bidders. Moreover, it also requires complete information revelation by bidders, which can be a severe constraint in a real world application. Iterative auctions have been identified as a good alternative for practical implementations, though sometimes trading practicality with efficiency.

We present a simple iterative auction that lets companies efficiently price and allocate limited quantities of high-demand goods. Self-interested and myopic agents can participate in a distributed manner in this online auction. We consider a supply of multiple units of heterogeneous goods under unit demand by agents that have private valuations. Because of its iterative nature, our auction computes the efficient outcome with very little information revelation from the agents. We show that this outcome is efficient and has incentive compatibility properties, like the GVA, under certain assumptions about the agent valuations. Our simulations have shown that the mechanism converges quickly to the equilibrium and collects relatively little information from the agents.