Competitive auctions

We study a class of single-round, sealed-bid auctions for items in unlimited supply, such as digital goods. We introduce the notion of competitive auctions. A competitive auction is truthful (i.e., encourages buyers to bid their utility) and yields profit that is roughly within a constant factor of the profit of optimal fixed pricing for all inputs. We justify the use of optimal fixed pricing as a benchmark for evaluating competitive auction profit. We show that several randomized auctions are truthful and competitive and that no truthful deterministic auction is competitive. Our results extend to bounded supply markets, for which we also get truthful and competitive auctions. A preliminary version of this paper appeared in [6, 7]. The new paper contains new results and refines some of the results and concepts introduced in the preliminary version. Microsoft Research, SVC/5, 1065 La Avenida, Mountain View, CA 94043. Part of this work was done while the author was at InterTrust Technologies Corp. Computer Science Department, University of Washington. Part of the work done while the author was visiting InterTrust. Computer Science Department, University of Washington. Supported in part by NSF grant CCR-0105406. Department of Mathematics–Hill Center, Rutgers University. 110 Frelinghuysen Rd., Piscataway, NJ 08854. Supported by NSF grant CCR-9988526. Part of the work was done while visiting Microsoft Research. This work was done while the author was at InterTrust Technologies Corp. 1