Send mixed signals

Abstract

Emek et al presented a model of probabilistic single-item second price auctions where an auctioneer who is informed about the type of an item for sale, broadcasts a signal about this type to uninformed bidders. They proved that finding the optimal (for the purpose of generating revenue) pure signaling scheme is strongly NP-hard. In contrast, we prove that finding the optimal mixed signaling scheme can be done in polynomial time using linear programming. For the proof, we show that the problem is strongly related to a problem of optimally bundling divisible goods for auctioning. We also prove that a mixed signaling scheme can in some cases generate twice as much revenue as the best pure signaling scheme and we prove a generally applicable lower bound on the revenue generated by the best mixed signaling scheme.