Multi Item auction

** October 09, 2002 transcribed by Dhan Mahesh**

In this class we would be discussing Multi Item Auction.
There are buyers and sellers each buyer wants to buy only one item
out of the many available. Each seller has a single item to sell.

For example:

Car Model | Value (in Lakhs) | Price (in Lakhs) |

Maruti 800 | 1.0 | 0.5 |

Lancer | 5.0 | 1.0 |

Which car would a buyer prefer? How would his/her preference be represented?

stands for the maximum a buyer is willing to pay for item .

stands for the price at which item j can be bought.

Buyers may want to maximize their surplus : or the profit ratio

Every seller has a reserve price on item . The reserve price represents the minimum price that a seller expects for the item and he/she would like to maximize his/her surplus that is given by

If the utilities are quasi linear in money then the social optimal for the economy is to maximize the total surplus. Define variable which is when buyer gets item and otherwise since each buyer can buy only one item.

Also an item can be bought by atmost one buyer. Therefore

Surplus for buyer can be given by .The total buyer surplus is given by

Similarly , total seller surplus is given by

Therefore the total surplus given by

Maximum weighted bipartite matching gives allocation but the problem
of how much buyer has to pay to buy that item remains unsolved. Even
to get allocation also, one has to get teh maximum price a buyer is
willing to pay for an item and its reserve price from seller. Would
they give their current prices?

VCG procedure will give solution but let us see an alternative solution.

In the special case when ( there is a single item) ascending english auction leads to efficient allocation.

Final price = Second highest value.

If two items and many buyers: For example, two items and three buyers as below:

Assume open cry ascending auction.

buyer and buyer competes with eachother for item till Rs and then buyer can outbid buyer by quoting some price such that . Similarly in case of item , buyer and buyer would be competing for item till Rs and then if buyer gets chance he/she has to decide which item to choose. It is obvious that he/she would choose item and gets it at some (). So buyer would get item at some price such that .

In general what procedure will give us stable and efficient allocation? That procedure should lead to stable matching ( Self enforcing)

Bidding Procedure/strategy

General Case: At every step buyer places a bid on item such that is maximized and then rests until somebody outbids him/her.This procedure goes on like this. What will happen if we go like this (sooner or later, bidding stops as price will come to So, we are going to get with a matching and price. This procedure converges to (M,P)- (Matching, Price).

Stability:

A situation where when an auction terminates no buyer is interested in switching.

If this condition is not satisfied then & can deviate from
current allocation & be both better of , destabilizing X.

Claim: (M,P) is stable matching.

(A,y) would destabilize the matching iff

Let us see under what conditions we would get stable matching?

After A places bid on , price of can increase (or stay unchanged ). So his/her surplus on can't be more than on at a future time. He/she placed a bid on of which is less that

Lets see whether this leads to maximum surplus / efficient allocation ?

Assume number of buyers = number of items. We would be getting a unique stable matching but lots of prices possible.

Lets look at efficient allocation

Fig 5(i): Our algo | Fig 5(ii): Optimal (given by some other algo) |

So, we would get some disjoint cycles. As there are equal number of buyers and sellers, if we start from any buyer we will come back to that buyer.

Now we have to prove that the sum of the weights picked by our algo is atleast equal to that of Optimal.

add them up.

This is true for all the cycles. Therefore our algo will give the correct maximum weighted bipartite matching.

If not all items are matched.

(assume for 3 buyers and 3 items)

add them up

but ;

another case:

Therefore our allocation gives better results.

So we can say that this procedure gives better results which are competitive with respect to buyers and are stable

By VCG:

Take for every item each buyer is willing to pay and all the sellers will sit and give to one who bids the maximum. We exclude that bidder and find the price.

There can be different prices but same stable matching.

This method would be applicable for recruitment (employers and employees).