1. Exchanges = markets with many buyers and many sellers Let’s consider a 1-item 1-unit exchange first

2. Exchange game in class 1 buyer, 1 seller, 1 good The agents’ valuations for the good are drawn uniformly from [0, 100]. This is common knowledge The agents don’t know each others’ valuations

3. Does a good exchange mechanism exist ? E.g: Keith is selling a car to Tuomas –Both have quasilinear utility functions –Each party knows his valuation, but not the other’s valuation –Probability distributions of valuations are common knowledge Want a mechanism that is –Budget balanced: Keith gets what Tuomas pays –Pareto efficient: Car changes hands if and only if v buyer > v seller –Individually rational: Both Keith and Tuomas get higher expected utility by participating than not Thrm. Such a mechanism does not exist (even if randomized mechanisms are allowed) [Myerson-Satterthwaite] –This impossibility is at the heart of more general exchange settings (NYSE, NASDAQ, combinatorial exchanges, …) !

4. Multi-unit auctions & exchanges (multiple indistinguishable units of one item for sale) Tuomas Sandholm Carnegie Mellon University

5. Markets with multiple indistinguishable units for sale Application examples –IBM stocks –Barrels of oil –Pork bellies –Trans-Atlantic backbone bandwidth from NYC to Paris –…

6. Multi-unit auctions: pricing rules Auctioning multiple indistinguishable units of an item Naive generalization of the Vickrey auction: uniform price auction –If there are k units for sale, the highest k bids win, and each bid pays the k+1st highest price –Demand reduction lie [Crampton&Ausubel 96]: k=5 Agent 1 values getting her first unit at $9, and getting a second unit is worth $7 to her Others have placed bids $2, $6, $8, $10, and $14 If agent 1 submits one bid at $9 and one at $7, she gets both items, and pays 2 x $6 = $12. Her utility is $9 + $7 - $12 = $4 If agent 1 only submits one bid for $9, she will get one item, and pay $2. Her utility is $9-$2=$7 Incentive compatible mechanism that is Pareto efficient and ex post individually rational –Clarke tax. Agent i pays a-b b is the others’ sum of winning bids a is the others’ sum of winning bids had i not participated

7. Multi-unit exchanges Multiple buyers, multiple sellers, multiple units for sale By Myerson-Satterthwaite thrm, even in 1- unit case cannot obtain all of Pareto efficiency Budget balance Individual rationality (participation)

8. Multi-unit auctions & exchanges: Clearing complexity [Sandholm & Suri IJCAI-01 & new draft]

9. Screenshot from eMediator [Sandholm AGENTS-00]

10. Supply/demand curve bids profit = amounts paid by bidders – amounts paid to sellers Can be divided between buyers, sellers & market maker Unit price Quantity Aggregate supply Aggregate demand One price for everyone (“classic partial equilibrium”): profit = 0 One price for sellers, one for buyers ( nondiscriminatory pricing ): profit > 0 profit p sell p buy

11. Nondiscriminatory vs. discriminatory pricing Unit price Quantity Supply of agent 1 Aggregate demand Supply of agent 2 One price for sellers, one for buyers ( nondiscriminatory pricing ): profit > 0 p sell p buy One price for each agent ( discriminatory pricing ): greater profit p1 sell p buy p2 sell

12. Shape of supply/demand curves Piecewise linear curve can approximate any curve Assume –Each buyer’s demand curve is downward sloping –Each seller’s supply curve is upward sloping –Otherwise absurd result can occur Aggregate curves might not be monotonic Even individuals’ curves might not be continuous

13. Pricing scheme has implications on time complexity of clearing Piecewise linear curves (not necessarily continuous) can approximate any curve Clearing objective: maximize profit Thrm. Nondiscriminatory clearing with piecewise linear supply/demand: O(p log p) –p = total number of pieces in the curves Thrm. Discriminatory clearing with piecewise linear supply/demand: NP-complete Thrm. Discriminatory clearing with linear supply/demand: O(a log a) –a = number of agents These results apply to auctions, reverse auctions, and exchanges So, there is an inherent tradeoff between profit and computational complexity

14. Multi-unit reverse auctions with supply curves Same complexity results apply as in auctions –O(#pieces log #pieces) in nondiscriminatory case with piecewise linear supply curves –NP-complete in discriminatory case with piecewise linear supply curves –O(#agents log #agents) in discriminatory case with linear supply curves