Cost Sharing in Two-Sided Markets

TL;DR

This paper introduces a mechanism design framework for two-sided markets where sellers and buyers have private costs and values, aiming to maximize welfare while ensuring incentive compatibility and budget balance.

Contribution

It formulates the two-sided cost sharing problem and proposes mechanisms that achieve efficiency, incentive compatibility, and budget balance in complex, repeated service markets.

Findings

Designed mechanisms are incentive compatible and budget-balanced.

Mechanisms achieve welfare maximization in two-sided markets.

Framework accommodates repeated interactions and context-dependent values.

Abstract

Motivated by the emergence of popular service-based two-sided markets where sellers can serve multiple buyers at the same time, we formulate and study the {\em two-sided cost sharing} problem. In two-sided cost sharing, sellers incur different costs for serving different subsets of buyers and buyers have different values for being served by different sellers. Both buyers and sellers are self-interested agents whose values and costs are private information. We study the problem from the perspective of an intermediary platform that matches buyers to sellers and assigns prices and wages in an effort to maximize welfare (i.e., buyer values minus seller costs) subject to budget-balance in an incentive compatible manner. In our markets of interest, agents trade the (often same) services multiple times. Moreover, the value and cost for the same service differs based on the context (e.g., location, urgency, weather conditions, etc). In this framework, we design mechanisms that are efficient, ex-ante budget-balanced, ex-ante individually rational, dominant strategy incentive compatible, and ex-ante in the core (a natural generalization of the core that we define here).