Pricing public goods for private sale

Michal Feldman, David Kempe, Brendan Lucier, Renato Paes Leme

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

We consider the pricing problem faced by a seller who assigns a price to a good that confers its benefits not only to its buyers, but also to other individuals around them. For example, a snow-blower is potentially useful not only to the household that buys it, but also to others on the same street. Given that the seller is constrained to selling such a (locally) public good via individual private sales, how should he set his prices given the distribution of values held by the agents? We study this problem as a two-stage game. In the first stage, the seller chooses and announces a price for the product. In the second stage, the agents (each having a private value for the good) decide simultaneously whether or not they will buy the product. In the resulting game, which can exhibit a multiplicity of equilibria, agents must strategize about whether they will themselves purchase the good to receive its benefits. In the case of a fully public good (where all agents benefit whenever any agent purchases), we describe a pricing mechanism that is approximately revenue-optimal (up to a constant factor) when values are drawn from a regular distribution. We then study settings in which the good is only "locally" public: agents are arranged in a network and share benefits only with their neighbors. We describe a pricing method that approximately maximizes revenue, in the worst case over equilibria of agent behavior, for any d-regular network. Finally, we show that approximately optimal prices can be found for general networks in the special case that private values are drawn from a uniform distribution. We also discuss some barriers to extending these results to general networks and regular distributions.

Original languageEnglish
Title of host publicationEC 2013 - Proceedings of the 14th ACM Conference on Electronic Commerce
PublisherAssociation for Computing Machinery
Pages417-434
Number of pages18
ISBN (Print)9781450319621
DOIs
StatePublished - 2013
Externally publishedYes
Event14th ACM Conference on Electronic Commerce, EC 2013 - Philadelphia, PA, United States
Duration: 16 Jun 201320 Jun 2013

Publication series

NameProceedings of the ACM Conference on Electronic Commerce

Conference

Conference14th ACM Conference on Electronic Commerce, EC 2013
Country/TerritoryUnited States
CityPhiladelphia, PA
Period16/06/1320/06/13

Keywords

  • Externalities
  • Network
  • Pricing
  • Public good
  • Revenue maximization

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