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Truthful Double Auction Mechanisms

Marshall School of Business, University of Southern California, Los Angeles, California 90089
Department of Industrial Engineering and Operations Research, University of California, Berkeley, California 94720
leonyzhu{at}marshall.usc.edu
shen{at}ieor.berkeley.edu

Following the multistage design approach, we propose two asymptotically efficient truthful double auction mechanisms, the BC-LP mechanism and the MBC mechanism, for an exchange market with many buyers and sellers. In this market, each buyer wants to procure a bundle of commodities and each seller supplies one unit of a commodity. Furthermore, various transaction-related costs will be incurred when a buyer trades with a seller. We prove that under both mechanisms, truthful bidding is a dominant strategy for all buyers and sellers when the buyers' bundle information and the transaction cost information are common knowledge. The BC-LP mechanism can be implemented by just solving two linear programs, whereas the MBC mechanism has a higher complexity. The empirical study shows that the MBC mechanism achieves higher efficiency over the BC-LP mechanism and that both outperform the KSM-TR mechanism, the only known truthful mechanism for a more restrictive exchange market.

Subject classifications: games/group decisions; bidding/auctions; information systems; analysis and design.
History: Received July 2005; revision received August 2006; accepted December 2006.