Optimal Auctions for Spiteful Bidders

11 years 7 months ago

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Designing revenue-optimal auctions for various settings is perhaps the most important, yet sometimes most elusive, problem in mechanism design. Spiteful bidders have been intensely studied recently, especially because spite occurs in many applications in multiagent system and electronic commerce. We derive the optimal auction for such bidders (as well as bidders that are altruistic). It is a generalization of Myerson’s (1981) auction. It chooses an allocation that maximizes agents’ virtual valuations, but for a generalized deﬁnition of virtual valuation. The payment rule is less intuitive. For one, it takes each bidder’s own report into consideration when determining his payment. Moreover, bidders pay even if the seller keeps the item; a similar phenomenon has been shown in other settings with negative externalities (Jehiel, Moldovanu, and Stacchetti 1996; Deng and Pekeˇc 2011). On the other hand, a novel aspect of our auction is that it sometimes subsidizes losers when the i...

Pingzhong Tang, Tuomas Sandholm

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