Extended Abstract of Diffusion Auction Design with Transaction Costs

Bin Li, Dong Hao, Dengji Zhao

Abstract: We study multi-unit diffusion auctions powered by intermediated markets, where all transactions are processed by intermediaries and incur certain costs. The classic Vickrey-Clarke-Groves (VCG) mechanism within the scenario can obtain the maximum social welfare, but it can lead to a deficit for the seller. To address the revenue issue, we develop two deficit reduction strategies and further propose a family of diffusion auctions, called Critical Neighborhood Auctions (CNA). The CNA not only maximizes the social welfare, but also achieves a (non-negative) revenue that is no less than the revenue given by the VCG mechanism with/without intermediaries. This is the first set of diffusion auctions with welfare and revenue advantages that can handle multiple items and transaction costs.