Descending Price Auctions with Bounded Number of Price levels and Batched Prophet Inequality

Abstract

We consider descending price auctions for selling m units of a good to unit demand i.i.d. buyers where there is an exogenous bound of k on the number of price levels the auction clock can take. The auctioneer's problem is to choose price levels p_1 > p_2 >... > p_k for the auction clock such that auction expected revenue is maximized. The prices levels are announced prior to the auction. We reduce this problem to a new variant of prophet inequality, which we call "batched prophet inequality", where a decision-maker chooses k (decreasing) thresholds and then sequentially collects rewards (up to m) that are above the thresholds with ties broken uniformly at random. For the special case of m=1 (i.e., selling a single item), we show that the resulting descending auction with k price levels achieves 1- 1/e^k of the unrestricted (without the bound of k) optimal revenue. That means a descending auction with just 4 price levels can achieve more than 98% of the optimal revenue. We then extend our results for m>1 and provide a closed-form bound on the competitive ratio of our auction as a function of the number of units m and the number of price levels k.

Keywords: Clock auction, First price auction, Bayesian online selection, Optimal auction