Modularity and Greed in Double Auctions
Designing double auctions is a complex problem, especially when there are restrictions on the sets of buyers and sellers that may trade with one another. The goal of this paper is to develop "black-box reductions" from double auction design to the exhaustively-studied problem of designing single-sided mechanisms. We consider several desirable properties of a double auction: feasibility, dominant strategy incentive compatibility, the still stronger incentive constraints offered by a deferred-acceptance implementation, exact and approximate welfare maximization, and budget balance. For each of these properties, we identify sufficient conditions on the two one-sided mechanisms - one for the buyers, one for the sellers - and on the method of composition, which guarantee the desired property of the double auction.
Our framework also offers new insights into classic double auction designs, such as the VCG and McAfee auctions with unit-demand buyers and unit-supply sellers.
Joint work with Paul Duetting and Tim Roughgarden.