A Simple and Approximately Optimal Mechanism for a Buyer with Complements

TL;DR

This paper introduces a simple, approximately optimal mechanism for revenue maximization in settings where a buyer's valuation exhibits both substitutes and complements, extending previous work to more complex valuation structures.

Contribution

It presents the first approximately optimal mechanism for buyers with valuations that include complements, using a duality framework and a novel hypergraph partitioning algorithm.

Findings

The mechanism guarantees a Θ(d) fraction of the optimal revenue.

It extends prior results from subadditive to valuations with complements.

Provides a new model and measure for the degree of complementarity.

Abstract

We consider a revenue-maximizing seller with $m$ heterogeneous items and a single buyer whose valuation $v$ for the items may exhibit both substitutes (i.e., for some $S, T$, $v(S \cup T) < v(S) + v(T)$) and complements (i.e., for some $S, T$, $v(S \cup T) > v(S) + v(T)$). We show that the mechanism first proposed by Babaioff et al. [2014] - the better of selling the items separately and bundling them together - guarantees a $\Theta(d)$ fraction of the optimal revenue, where $d$ is a measure on the degree of complementarity. Note that this is the first approximately optimal mechanism for a buyer whose valuation exhibits any kind of complementarity, and extends the work of Rubinstein and Weinberg [2015], which proved that the same simple mechanisms achieve a constant factor approximation when buyer valuations are subadditive, the most general class of complement-free valuations. Our proof is enabled by the recent duality framework developed in Cai et al. [2016], which we use to obtain a bound on the optimal revenue in this setting. Our main technical contributions are specialized to handle the intricacies of settings with complements, and include an algorithm for partitioning edges in a hypergraph. Even nailing down the right model and notion of "degree of complementarity" to obtain meaningful results is of interest, as the natural extensions of previous definitions provably fail.