TY - GEN

T1 - Welfare and revenue guarantees for competitive bundling equilibrium

AU - Dobzinski, Shahar

AU - Feldman, Michal

AU - Talgam-Cohen, Inbal

AU - Weinstein, Omri

N1 - Publisher Copyright:
© Springer-Verlag Berlin Heidelberg 2015.

PY - 2015

Y1 - 2015

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=84951873343&partnerID=8YFLogxK

U2 - 10.1007/978-3-662-48995-6_22

DO - 10.1007/978-3-662-48995-6_22

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AN - SCOPUS:84951873343

SN - 9783662489949

T3 - Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)

SP - 300

EP - 313

BT - Web and Internet Economics - 11th International Conference, WINE 2015, Proceedings

A2 - Schäfer, Guido

A2 - Markakis, Evangelos

PB - Springer Verlag

Y2 - 9 December 2015 through 12 December 2015

ER -