Efficient mechanisms for level-k bilateral trading
This paper revisits Myerson and Satterthwaite's (1983) classic analysis of mechanism design for bilateral trading, replacing equilibrium with a level-<em>k</em> model of strategic thinking and focusing on direct mechanisms. The revelation principle fails for level-<em>k</em...
| Main Author: | |
|---|---|
| Format: | Journal article |
| Language: | English |
| Published: |
Elsevier
2021
|
| _version_ | 1824458629438242816 |
|---|---|
| author | Crawford, VP |
| author_facet | Crawford, VP |
| author_sort | Crawford, VP |
| collection | OXFORD |
| description | This paper revisits Myerson and Satterthwaite's (1983) classic analysis of mechanism design for bilateral trading, replacing equilibrium with a level-<em>k</em> model of strategic thinking and focusing on direct mechanisms. The revelation principle fails for level-<em>k</em> models, so restricting attention to direct mechanisms and imposing incentive-compatibility are not without loss of generality. If, however, only direct, level-<em>k</em>-incentive-compatible mechanisms are feasible and traders' levels are observable, Myerson and Satterthwaite's characterization of mechanisms that maximize traders' total surplus subject to incentive constraints generalizes qualitatively to level-<em>k</em> models. If only direct, level-<em>k</em>-incentive-compatible mechanisms are feasible but traders' levels are not observable, generically a particular posted-price mechanism maximizes traders' total expected surplus subject to incentive constraints. If direct, non-level-<em>k</em>-incentive-compatible mechanisms are feasible and traders best respond to them, total expected surplus-maximizing mechanisms may take completely different forms. |
| first_indexed | 2025-02-19T04:28:56Z |
| format | Journal article |
| id | oxford-uuid:c5cb7abe-521d-4f07-ba5c-96e06e8f4cbd |
| institution | University of Oxford |
| language | English |
| last_indexed | 2025-02-19T04:28:56Z |
| publishDate | 2021 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:c5cb7abe-521d-4f07-ba5c-96e06e8f4cbd2024-12-12T17:21:43ZEfficient mechanisms for level-k bilateral tradingJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:c5cb7abe-521d-4f07-ba5c-96e06e8f4cbdEnglishSymplectic ElementsElsevier2021Crawford, VPThis paper revisits Myerson and Satterthwaite's (1983) classic analysis of mechanism design for bilateral trading, replacing equilibrium with a level-<em>k</em> model of strategic thinking and focusing on direct mechanisms. The revelation principle fails for level-<em>k</em> models, so restricting attention to direct mechanisms and imposing incentive-compatibility are not without loss of generality. If, however, only direct, level-<em>k</em>-incentive-compatible mechanisms are feasible and traders' levels are observable, Myerson and Satterthwaite's characterization of mechanisms that maximize traders' total surplus subject to incentive constraints generalizes qualitatively to level-<em>k</em> models. If only direct, level-<em>k</em>-incentive-compatible mechanisms are feasible but traders' levels are not observable, generically a particular posted-price mechanism maximizes traders' total expected surplus subject to incentive constraints. If direct, non-level-<em>k</em>-incentive-compatible mechanisms are feasible and traders best respond to them, total expected surplus-maximizing mechanisms may take completely different forms. |
| spellingShingle | Crawford, VP Efficient mechanisms for level-k bilateral trading |
| title | Efficient mechanisms for level-k bilateral trading |
| title_full | Efficient mechanisms for level-k bilateral trading |
| title_fullStr | Efficient mechanisms for level-k bilateral trading |
| title_full_unstemmed | Efficient mechanisms for level-k bilateral trading |
| title_short | Efficient mechanisms for level-k bilateral trading |
| title_sort | efficient mechanisms for level k bilateral trading |
| work_keys_str_mv | AT crawfordvp efficientmechanismsforlevelkbilateraltrading |