Competitive auctions for markets with positive externalities

Abstract

In digital goods auctions, the auctioneer sells an item in unlimited supply to a set of potential buyers. The objective is to design a truthful auction that maximizes the auctioneer's total profit. Motivated by the observation that the buyers' valuation of the good might be interconnected through a social network, we study digital goods auctions with positive externalities among buyers. This defines a multi-parameter auction design problem where the private valuation of every buyer is a function of the set of other winning buyers. The main contribution of this paper is a truthful competitive mechanism for subadditive valuations. Our competitive result is with respect to a new solution benchmark F3. On the other hand, we show a surprising impossibility result if comparing to the stronger benchmark F2, where the latter has been used quite successfully in digital goods auctions without externalities [16]. © 2013 Springer-Verlag.