SBBA: a Strongly-Budget-Balanced Double-Auction Mechanism

TL;DR

SBBA is a double-auction mechanism that ensures all trade gains go directly to traders by being strongly budget-balanced, improving upon McAfee's original mechanism, and it extends to spatial markets with transit costs.

Contribution

We introduce SBBA, a strongly budget-balanced double-auction mechanism that guarantees all gains are transferred to traders, unlike previous mechanisms that leave money on the table.

Findings

SBBA achieves strong budget-balance in double auctions.

SBBA ensures all gain-from-trade benefits traders.

The mechanism extends to spatial markets with transit costs.

Abstract

In a seminal paper, McAfee (1992) presented the first dominant strategy truthful mechanism for double auction. His mechanism attains nearly optimal gain-from-trade when the market is sufficiently large. However, his mechanism may leave money on the table, since the price paid by the buyers may be higher than the price paid to the sellers. This money is included in the gain-from-trade and in some cases it accounts for almost all the gain-from-trade, leaving almost no gain-from-trade to the traders. We present SBBA: a variant of McAfee's mechanism which is strongly budget-balanced. There is a single price, all money is exchanged between buyers and sellers and no money is left on the table. This means that all gain-from-trade is enjoyed by the traders. We generalize this variant to spatially-distributed markets with transit costs.