Bounds on the revenue gap of linear posted pricing for selling a divisible item

TL;DR

This paper analyzes the revenue performance of linear posted pricing mechanisms for selling divisible items, establishing bounds on their revenue gap compared to optimal mechanisms under certain probabilistic valuation models.

Contribution

It introduces a Bayesian model with concave buyer valuations and derives logarithmic bounds on the revenue gap for linear pricing mechanisms.

Findings

Revenue gap depends logarithmically on valuation parameters and number of agents.

Linear pricing mechanisms can approximate optimal revenue within a bounded factor.

Bounds are established under regularity assumptions on valuation distributions.

Abstract

Selling a perfectly divisible item to potential buyers is a fundamental task with apparent applications to pricing communication bandwidth and cloud computing services. Surprisingly, despite the rich literature on single-item auctions, revenue maximization when selling a divisible item is a much less understood objective. We introduce a Bayesian setting, in which the potential buyers have concave valuation functions (defined for each possible item fraction) that are randomly chosen according to known probability distributions. Extending the sequential posted pricing paradigm, we focus on mechanisms that use linear pricing, charging a fixed price for the whole item and proportional prices for fractions of it. Our goal is to understand the power of such mechanisms by bounding the gap between the expected revenue that can be achieved by the best among these mechanisms and the maximum expected revenue that can be achieved by any mechanism assuming mild restrictions on the behavior of the buyers. Under regularity assumptions for the probability distributions, we show that this revenue gap depends only logarithmically on a natural parameter characterizing the valuation functions and the number of agents. Our results follow by bounding the objective value of a mathematical program that maximizes the ex-ante relaxation of optimal revenue under linear pricing revenue constraints.