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Summary: Competitive Analysis of Incentive Compatible On-Line Auctions
Ron Lavi and Noam Nisan
Institute of Computer Science,
The Hebrew University of Jerusalem
Abstract
This paper studies auctions in a setting where the di erent bidders arrive at di erent times
and the auction mechanism is required to make decisions about each bid as it is received. Such
settings occur in computerized auctions of computational resources as well as in other settings.
We call such auctions, on-line auctions.
We rst characterize exactly on-line auctions that are incentive compatible, i.e. where rational
bidders are always motivated to bid their true valuation. We then embark on a competitive worst-
case analysis of incentive compatible on-line auctions. We obtain several results, the cleanest
of which is an incentive compatible on-line auction for a large number of identical items. This
auction has an optimal competitive ratio, both in terms of seller's revenue and in terms of the
total social eÆciency obtained.
1 Introduction
Auctions are a commonly used tool for selling goods in cases where a true market does not exist.
In the typical case multiple buyers aim to buy some good from a single seller, and the seller wishes
to sell the good for the highest possible price. Many types of auctions have been considered in the
literature, and an elegant theory has evolved. For an introduction see e.g. the textbook [16].
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