Walrasian equilibria from an optimization perspective: A guide to the literature

Abstract

AbstractAn ideal market mechanism allocates resources efficiently such that welfare is maximized and sets prices in a way so that the outcome is in a competitive equilibrium and no participant wants to deviate. An important part of the literature discusses Walrasian equilibria and conditions for their existence. We use duality theory to investigate existence of Walrasian equilibria and optimization algorithms to describe auction designs for different market environments in a consistent mathematical framework that allows us to classify the key contributions in the literature and open problems. We focus on auctions with indivisible goods and prove that the relaxed dual winner determination problem is equivalent to the minimization of the Lyapunov function. This allows us to describe central auction designs from the literature in the framework of primal‐dual algorithms. We cover important properties for existence of Walrasian equilibria derived from discrete convex analysis, and provide open research questions.