Competitive Equilibria in Matching Markets with Budgets

TL;DR

This paper investigates how budget constraints affect the existence and properties of competitive equilibria in matching markets, providing new algorithms for their computation under general utility functions.

Contribution

It introduces the concept of strong stability in markets with budgets and develops a polynomial-time algorithm to determine the existence of competitive equilibria for a broad class of utility functions.

Findings

Competitive equilibria may not always exist with budgets.

Strong stability aligns with competitive equilibria in the budgeted assignment model.

A polynomial-time algorithm can compute minimum equilibria for general utility functions.

Abstract

We study competitive equilibria in the classic Shapley-Shubik assignment model with indivisible goods and unit-demand buyers, with budget constraints: buyers can specify a maximum price they are willing to pay for each item, beyond which they cannot afford the item. This single discontinuity introduced by the budget constraint fundamentally changes the properties of equilibria: in the assignment model without budget constraints, a competitive equilibrium always exists, and corresponds exactly to a stable matching. With budgets, a competitive equilibrium need not always exist. In addition, there are now two distinct notions of stability, depending on whether both or only one of the buyer and seller can strictly benefit in a blocking pair, that no longer coincide due to the budget-induced discontinuity. We define weak and strong stability for the assignment model with transferable utilities, and show that competitive equilibria correspond exactly to strongly stable matchings. We consider the algorithmic question of efficiently computing competitive equilibria in an extension of the assignment model with budgets, where each buyer specifies his preferences over items using utility functions $u_{ij}$, where $u_{ij}(p_j)$ is the utility of buyer $i$ for item $j$ when its price is $p_j$. Our main result is a strongly polynomial time algorithm that decides whether or not a competitive equilibrium exists and if yes, computes a minimum one, for a general class of utility functions $u_{ij}$. This class of utility functions includes the standard quasi-linear utility model with a budget constraint, and in addition, allows modeling marketplaces where, for example, buyers only have a preference ranking amongst items subject to a maximum payment limit for each item, or where buyers want to optimize return on investment (ROI) instead of a quasi-linear utility and only know items' relative values.