Simple Economies are Almost Optimal

TL;DR

This paper demonstrates that simple, focused marketing strategies can nearly match the revenue of complex, mixed-market approaches in auctions, and provides bounds on revenue guarantees for simple auction formats.

Contribution

It establishes that single-market distributions can achieve near-optimal revenue and offers bounds for second-price auctions with limited distribution diversity among bidders.

Findings

Existence of a single distribution achieving at least half of the mixed-market revenue.

Second-price auctions with a single distribution guarantee a constant fraction of optimal revenue.

Limited diversity in bidder distributions suffices for near-optimal revenue approximation.

Abstract

Consider a seller that intends to auction some item. The seller can invest money and effort in advertising in different market segments in order to recruit $n$ bidders to the auction. Alternatively, the seller can have a much cheaper and focused marketing operation and recruit the same number of bidders from a single market segment. Which marketing operation should the seller choose? More formally, let $D=\{\mathcal D_1,\ldots, \mathcal D_n\}$ be a set of distributions. Our main result shows that there is always $\mathcal D_i\in D$ such that the revenue that can be extracted from $n$ bidders, where the value of each is independently drawn from $\mathcal D_i$, is at least $\frac 1 2 \cdot (1-\frac 1 e)$ of the revenue that can be obtained by any possible mix of bidders, where the value of each bidder is drawn from some (possibly different) distribution that belongs to $D$. We next consider situations in which the auctioneer cannot use the optimal auction and is required to use a second price auction. We show that there is always $\mathcal D_i\in D$ such that if the value of all bidders is independently drawn from $\mathcal D_i$ then running a second price auction guarantees a constant fraction of the revenue that can be obtained by a second-price auction by any possible mix of bidders. Finally, we show that for any $\varepsilon>0$ there exists a function $f$ that depends only on $\varepsilon$ (in particular, the function does not depend on $n$ or on the set $D$), such that recruiting $n$ bidders which have at most $f(\varepsilon)$ different distributions, all from $D$, guarantees $(1-\varepsilon)$-fraction of the revenue that can be obtained by a second-price auction by any possible mix of bidders.