Design of Double Auction Mechanism Based on Social Network

Abstract

In the traditional double auction market, the number of achievable tradable pairs are usually limited by the market size. To solve this problem, we propose new double auction mechanisms based on social networks to realize market expansion. In this paper, we examine the double auction market, which consists of a group of sellers and a group of buyers, where the sellers provide the same type of items, and the buyers respectively purchase one from them. In addition, every buyer can invite other potential buyers to enter the market through social networks. The goal of this paper is to propose mechanisms such that they can encourage buyers already in the market to invite other potential buyers to join the auction through social networks, and achieve an effective allocation of merchandises and increase profits for sellers, which cannot be achieved under the existing double auction mechanism. We found that the extended McAfee auction mechanism cannot motivate existing buyers to invite other potential ones, while the traditional Vickrey-Clark-Groves (VCG) mechanism cannot guarantee to break even. To solve these problems, we propose two mechanisms, which are called information network auction (INA) mechanism and double network auction (DNA) mechanism. Both of these mechanisms can encourage old buyers in the market to invite new potential customers to participate. Moreover, INA focuses on achieving more effective allocation and DNA focuses on ensuring a balance between income and expenditure.