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579
Algorithmic mechanism design
 Games and Economic Behavior
, 1999
"... We consider algorithmic problems in a distributed setting where the participants cannot be assumed to follow the algorithm but rather their own selfinterest. As such participants, termed agents, are capable of manipulating the algorithm, the algorithm designer should ensure in advance that the agen ..."
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Cited by 563 (17 self)
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We consider algorithmic problems in a distributed setting where the participants cannot be assumed to follow the algorithm but rather their own selfinterest. As such participants, termed agents, are capable of manipulating the algorithm, the algorithm designer should ensure in advance that the agents ’ interests are best served by behaving correctly. Following notions from the field of mechanism design, we suggest a framework for studying such algorithms. Our main technical contribution concerns the study of a representative task scheduling problem for which the standard mechanism design tools do not suffice. Journal of Economic Literature
Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords
 American Economic Review
, 2005
"... We investigate the “generalized secondprice ” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the VickreyClarkeGroves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equili ..."
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Cited by 342 (16 self)
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We investigate the “generalized secondprice ” (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the VickreyClarkeGroves (VCG) mechanism, its properties are very different. Unlike the VCG mechanism, GSP generally does not have an equilibrium in dominant strategies, and truthtelling is not an equilibrium of GSP. To analyze the properties of GSP, we describe the generalized English auction that corresponds to GSP and show that it has a unique equilibrium. This is an ex post equilibrium, with the same payoffs to all players as the dominant strategy equilibrium of VCG. (JEL D44, L81, M37) This paper investigates a new auction mechanism, which we call the “generalized secondprice” auction, or GSP. GSP is tailored to the unique environment of the market for online ads, and neither the environment nor the mechanism has previously been studied in the mechanism design literature. While studying the properties of a novel mechanism is often fascinating in itself, our interest is also motivated by the spectacular commercial success of GSP. It is the dominant transaction mechanism in a large and rapidly growing industry. For example, Google’s total revenue in 2005 was $6.14 billion. Over 98 percent of its revenue came from GSP auctions. Yahoo!’s total revenue in 2005 was $5.26 billion. A large share of Yahoo!’s revenue is derived from sales via GSP auctions. It is believed that over half of Yahoo!’s revenue is derived from sales via GSP auctions. As of May 2006, the combined market capitalization of these companies exceeded $150 billion. Let us briefly describe how these auctions work. When an Internet user enters a search
Sharing the Cost of Multicast Transmissions
 Journal of Computer and System Sciences
, 2001
"... We investigate costsharing algorithms for multicast transmission. Economic considerations point to two distinct mechanisms, marginal cost and Shapley value, as the two solutions most appropriate in this context. We prove that the former has a natural algorithm that uses only two messages per link o ..."
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Cited by 254 (18 self)
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We investigate costsharing algorithms for multicast transmission. Economic considerations point to two distinct mechanisms, marginal cost and Shapley value, as the two solutions most appropriate in this context. We prove that the former has a natural algorithm that uses only two messages per link of the multicast tree, while we give evidence that the latter requires a quadratic total number of messages. We also show that the welfare value achieved by an optimal multicast tree is NPhard to approximate within any constant factor, even for boundeddegree networks. The lowerbound proof for the Shapley value uses a novel algebraic technique for bounding from below the number of messages exchanged in a distributed computation; this technique may prove useful in other contexts as well. 1
Bidding and Allocation in Combinatorial Auctions
 In ACM Conference on Electronic Commerce
, 2000
"... When an auction of multiple items is performed, it is often desirable to allow bids on combinations of items, as opposed to only on single items. Such an auction is often called "combinatorial ", and the exponential number of possible combinations results in computational intractability of many a ..."
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Cited by 242 (11 self)
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When an auction of multiple items is performed, it is often desirable to allow bids on combinations of items, as opposed to only on single items. Such an auction is often called "combinatorial ", and the exponential number of possible combinations results in computational intractability of many aspects regarding such an auction. This paper considers two of these aspects: the bidding language and the allocation algorithm. First we consider which kinds of bids on combinations are allowed and how, i.e. in what language, they are specified. The basic tradeoff is the expressibility of the language versus its simplicity. We consider and formalize several bidding languages and compare their strengths. We prove exponential separations between the expressive power of different languages, and show that one language, "ORbids with phantom items", can polynomially simulate the others. We then consider the problem of determining the best allocation  a problem known to be computationally intractable. We suggest an approach based on Linear Programming (LP) and motivate it. We prove that the LP approach finds an optimal allocation if and only if prices can be attached to single items in the auction. We pinpoint several classes of auctions where this is the case, and suggest greedy and branchandbound heuristics based on LP for other cases. 1
Distributed Algorithmic Mechanism Design: Recent Results and Future Directions
 In Proceedings of the 6th International Workshop on Discrete Algorithms and Methods for Mobile Computing and Communications
, 2002
"... Distributed Algorithmic Mechanism Design (DAMD) combines theoretical computer science's traditional focus on computational tractability with its more recent interest in incentive compatibility and distributed computing. The Internet's decentralized nature, in which distributed computation and autono ..."
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Cited by 239 (17 self)
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Distributed Algorithmic Mechanism Design (DAMD) combines theoretical computer science's traditional focus on computational tractability with its more recent interest in incentive compatibility and distributed computing. The Internet's decentralized nature, in which distributed computation and autonomous agents prevail, makes DAMD a very natural approach for many Internet problems. This paper first outlines the basics of DAMD and then reviews previous DAMD results on multicast cost sharing and interdomain routing. The remainder of the paper describes several promising research directions and poses some specific open problems.
A BGPbased Mechanism for LowestCost Routing
, 2002
"... The routing of traffic between... this paper, we address the problem of interdomain routing from a mechanismdesign point of view. The application of mechanismdesign principles to the study of routing is the subject of earlier work by Nisan and Ronen [15] and Hershberger and Suri [11]. In this pape ..."
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Cited by 230 (17 self)
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The routing of traffic between... this paper, we address the problem of interdomain routing from a mechanismdesign point of view. The application of mechanismdesign principles to the study of routing is the subject of earlier work by Nisan and Ronen [15] and Hershberger and Suri [11]. In this paper, we formulate and solve a version of the routingmechanism design problem that is different from the previously studied version in three ways that make it more accurately reflective of realworld interdomain routing: (1) we treat the nodes as strategic agents, rather than the links; (2) our mechanism computes lowestcost routes for all sourcedestination pairs and payments for transit nodes on all of the routes (rather than computing routes and payments for only one sourcedestination pair at a time, as is done in [15,11]); (3) we show how to compute our mechanism with a distributed algorithm that is a straightforward extension to BGP and causes only modest increases in routingtable size and convergence time (in contrast with the centralized algorithms used in [15,11]). This approach of using an existing protocol as a substrate for distributed computation may prove useful in future development of Internet algorithms generally, not only for routing or pricing problems. Our design and analysis of a strategyproof, BGPbased routing mechanism provides a new, promising direction in distributed algorithmic mechanism design, which has heretofore been focused mainly on multicast cost sharing.
An efficient ascendingbid auction for multiple objects
 AMERICAN ECONOMIC REVIEW
, 1997
"... In multipleobject environments where individual bidders may demand more than one object, standard methods of auction generally result in allocative inefficiency. This paper proposes a new ascendingbid method for auctioning homogeneous goods, such as Treasury bills or communications spectrum. The a ..."
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Cited by 196 (26 self)
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In multipleobject environments where individual bidders may demand more than one object, standard methods of auction generally result in allocative inefficiency. This paper proposes a new ascendingbid method for auctioning homogeneous goods, such as Treasury bills or communications spectrum. The auctioneer announces a current price, bidders report back the quantity demanded at that price, and the auctioneer raises the price. Objects are awarded to bidders at the current price whenever they are “clinched,” and the process continues until the market clears. With pure private values, the proposed (dynamic) auction yields the same outcome as the (sealedbid) Vickrey auction, but may be simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders ’ demand curves. With interdependent values, the proposed auction may still yield efficiency, whereas the Vickrey auction fails due to a problem which could be described as the “Generalized Winner’s Curse.”
Putting Auction Theory to Work: The Simultaneous Ascending Auction
 Journal of Political Economy
, 2000
"... I review the uses of economic theory in the initial design and later improvement of the ‘‘simultaneous ascending auction,’ ’ which was developed initially for the sale of radio spectrum licenses in the United States. I analyze some capabilities and limitations of the auction, the roles of various de ..."
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Cited by 194 (14 self)
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I review the uses of economic theory in the initial design and later improvement of the ‘‘simultaneous ascending auction,’ ’ which was developed initially for the sale of radio spectrum licenses in the United States. I analyze some capabilities and limitations of the auction, the roles of various detailed rules, the possibilities for introducing combinatorial bidding, and some considerations in adapting the auction for sales in which revenue, rather than efficiency, is the primary goal. I.
Truthful Mechanisms for OneParameter Agents
"... In this paper, we show how to design truthful (dominant strategy) mechanisms for several combinatorial problems where each agent’s secret data is naturally expressed by a single positive real number. The goal of the mechanisms we consider is to allocate loads placed on the agents, and an agent’s sec ..."
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Cited by 191 (4 self)
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In this paper, we show how to design truthful (dominant strategy) mechanisms for several combinatorial problems where each agent’s secret data is naturally expressed by a single positive real number. The goal of the mechanisms we consider is to allocate loads placed on the agents, and an agent’s secret data is the cost she incurs per unit load. We give an exact characterization for the algorithms that can be used to design truthful mechanisms for such load balancing problems using appropriate side payments. We use our characterization to design polynomial time truthful mechanisms for several problems in combinatorial optimization to which the celebrated VCG mechanism does not apply. For scheduling related parallel machines (QjjCmax), we give a 3approximation mechanism based on randomized rounding of the optimal fractional solution. This problem is NPcomplete, and the standard approximation algorithms (greedy loadbalancing or the PTAS) cannot be used in truthful mechanisms. We show our mechanism to be frugal, in that the total payment needed is only a logarithmic factor more than the actual costs incurred by the machines, unless one machine dominates the total processing power. We also give truthful mechanisms for maximum flow, Qjj P Cj (scheduling related machines to minimize the sum of completion times), optimizing an affine function over a fixed set, and special cases of uncapacitated facility location. In addition, for Qjj P wjCj (minimizing the weighted sum of completion times), we prove a lower bound of 2 p 3 for the best approximation ratio achievable by a truthful mechanism.
Computationally feasible VCG mechanisms
 In Proceedings of the Second ACM Conference on Electronic Commerce (EC’00
, 2000
"... A major achievement of mechanism design theory is a general method for the construction of truthful mechanisms called VCG. When applying this method to complex problems such as combinatorial auctions, a difficulty arises: VCG mechanisms are required to compute optimal outcomes and are therefore comp ..."
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Cited by 188 (5 self)
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A major achievement of mechanism design theory is a general method for the construction of truthful mechanisms called VCG. When applying this method to complex problems such as combinatorial auctions, a difficulty arises: VCG mechanisms are required to compute optimal outcomes and are therefore computationally infeasible. However, if the optimal outcome is replaced by the results of a suboptimal algorithm, the resulting mechanism (termed VCGbased) is no longer necessarily truthful. The first part of this paper studies this phenomenon in depth and shows that it is near universal. Specifically, we prove that essentially all reasonable approximations or heuristics for combinatorial auctions as well as a wide class of cost minimization problems yield nontruthful VCGbased mechanisms. We generalize these results for affine maximizers. The second part of this paper proposes a general method for circumventing the above problem. We introduce a modification of VCGbased mechanisms in which the agents are given a chance to improve the output of the underlying algorithm. When the agents behave truthfully, the welfare obtained by the mechanism is at least as good as the one obtained by the algorithm’s output. We provide a strong rationale for truthtelling behavior. Our method satisfies individual rationality as well.