Welfare and revenue guarantees for competitive bundling equilibrium

Shahar Dobzinski, Michal Feldman, Inbal Talgam-Cohen, Omri Weinstein

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

Abstract

Competitive equilibrium, the central equilibrium notion in markets with indivisible goods, is based on pricing each good such that the demand for goods equals their supply and the market clears. This equilibrium notion is not guaranteed to exist beyond the narrow case of substitute goods, might result in zero revenue even when consumers value the goods highly, and overlooks the widespread practice of pricing bundles rather than individual goods. Alternative equilibrium notions proposed to address these shortcomings have either made a strong assumption on the ability to withhold supply in equilibrium, or have allowed an exponential number of prices. In this paper we study the notion of competitive bundling equilibrium – a competitive equilibrium over the market induced by partitioning the goods into bundles. Such an equilibrium is guaranteed to exist, is succinct, and satisfies the fundamental economic condition of market clearance. We establish positive welfare and revenue guarantees for this solution concept: For welfarewe show that inmarkets with homogeneous goods, there always exists a competitive bundling equilibrium that achieves a logarithmic fraction of the optimal welfare. We also extend this result to establish nontrivial welfare guarantees for markets with heterogeneous goods. For revenue we show that in a natural class of markets for which competitive equilibrium does not guarantee positive revenue, there always exists a competitive bundling equilibrium that extracts as revenue a logarithmic fraction of the optimal welfare. Both results are tight.

Original languageEnglish
Title of host publicationWeb and Internet Economics - 11th International Conference, WINE 2015, Proceedings
EditorsGuido Schäfer, Evangelos Markakis
PublisherSpringer Verlag
Pages300-313
Number of pages14
ISBN (Print)9783662489949
DOIs
StatePublished - 2015
Event11th International Conference on Web and Internet Economics, WINE 2015 - Amsterdam, Netherlands
Duration: 9 Dec 201512 Dec 2015

Publication series

NameLecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume9470
ISSN (Print)0302-9743
ISSN (Electronic)1611-3349

Conference

Conference11th International Conference on Web and Internet Economics, WINE 2015
Country/TerritoryNetherlands
CityAmsterdam
Period9/12/1512/12/15

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