Simple versus optimal mechanisms

Abstract

The monopolist's theory of optimal single-item auctions for agents with independent private values can be summarized by two statements. The first is from Myerson [8]: the optimal auction is Vickrey with a reserve price. The second is from Bulow and Klemperer [1]: it is better to recruit one more bidder and run the Vickrey auction than to run the optimal auction. These results hold for single-item auctions under the assumption that the agents' valuations are independently and identically drawn from a distribution that satisfies a natural (and prevalent) regularity condition.These fundamental guarantees for the Vickrey auction fail to hold in general single-parameter agent mechanism design problems. We give precise (and weak) conditions under which approximate analogs of these two results hold, thereby demonstrating that simple mechanisms remain almost optimal in quite general single-parameter agent settings.