Clinching Auctions Beyond Hard Budget Constraints

TL;DR

This paper extends clinching auction frameworks to settings with more realistic liquidity constraints like average budgets, providing a general design for Pareto optimal and incentive compatible auctions in polymatroidal environments.

Contribution

It introduces a novel auction design for agents with constrained quasi-linear utilities, broadening the applicability of clinching auctions beyond hard budget constraints.

Findings

Characterizes tight sets in clinching auctions with new concepts of dropping prices and saturation.

Provides a general framework for Pareto optimal, incentive compatible auctions in polymatroidal environments.

Extends auction design to more realistic liquidity constraints like average budgets.

Abstract

Constraints on agent's ability to pay play a major role in auction design for any setting where the magnitude of financial transactions is sufficiently large. Those constraints have been traditionally modeled in mechanism design as \emph{hard budget}, i.e., mechanism is not allowed to charge agents more than a certain amount. Yet, real auction systems (such as Google AdWords) allow more sophisticated constraints on agents' ability to pay, such as \emph{average budgets}. In this work, we investigate the design of Pareto optimal and incentive compatible auctions for agents with \emph{constrained quasi-linear utilities}, which captures more realistic models of liquidity constraints that the agents may have. Our result applies to a very general class of allocation constraints known as polymatroidal environments, encompassing many settings of interest such as multi-unit auctions, matching markets, video-on-demand and advertisement systems. Our design is based Ausubel's \emph{clinching framework}. Incentive compatibility and feasibility with respect to ability-to-pay constraints are direct consequences of the clinching framework. Pareto-optimality, on the other hand, is considerably more challenging, since the no-trade condition that characterizes it depends not only on whether agents have their budgets exhausted or not, but also on prices {at} which the goods are allocated. In order to get a handle on those prices, we introduce novel concepts of dropping prices and saturation. These concepts lead to our main structural result which is a characterization of the tight sets in the clinching auction outcome and its relation to dropping prices.