On the Construction of Substitutes

Gross substitutability is a central concept in Economics and is connected to important notions in Discrete Convex Analysis, Number Theory and the analysis of Greedy algorithms in Computer Science. Many different characterizations are known for this class, but providing a constructive description remains a major open problem. The construction problem asks how to construct all gross substitutes from a class of simpler functions using a set of operations. Since gross substitutes are a natural generalization of matroids to real-valued functions, matroid rank functions form a desirable such class of simpler functions. Shioura proved that a rich class of gross substitutes can be expressed as sums of matroid rank functions, but it is open whether all gross substitutes can be constructed this way. Our main result is a negative answer showing that some gross substitutes cannot be expressed as positive linear combinations of matroid rank functions. En route, we provide necessary and sufficient conditions for the sum to preserve substitutability, uncover a new operation preserving substitutability and fully describe all substitutes with at most 4 items

Price Competition in Online Combinatorial Markets

We consider a single buyer with a combinatorial preference that would like to purchase related products and services from different vendors, where each vendor supplies exactly one product. We study the general case where subsets of products can be substitutes as well as complementary and analyze the game that is induced on the vendors, where a vendor's strategy is the price that he asks for his product. This model generalizes both Bertrand competition (where vendors are perfect substitutes) and Nash bargaining (where they are perfect complements), and captures a wide variety of scenarios that can appear in complex crowd sourcing or in automatic pricing of related products. We study the equilibria of such games and show that a pure efficient equilibrium always exists. In the case of submodular buyer preferences we fully characterize the set of pure Nash equilibria, essentially showing uniqueness. For the even more restricted "substitutes" buyer preferences we also prove uniqueness over {\em mixed} equilibria. Finally we begin the exploration of natural generalizations of our setting such as when services have costs, when there are multiple buyers or uncertainty about the the buyer's valuation, and when a single vendor supplies multiple products.Comment: accept to WWW'14 (23rd International World Wide Web Conference

On the Efficiency of the Walrasian Mechanism

Central results in economics guarantee the existence of efficient equilibria for various classes of markets. An underlying assumption in early work is that agents are price-takers, i.e., agents honestly report their true demand in response to prices. A line of research in economics, initiated by Hurwicz (1972), is devoted to understanding how such markets perform when agents are strategic about their demands. This is captured by the \emph{Walrasian Mechanism} that proceeds by collecting reported demands, finding clearing prices in the \emph{reported} market via an ascending price t\^{a}tonnement procedure, and returns the resulting allocation. Similar mechanisms are used, for example, in the daily opening of the New York Stock Exchange and the call market for copper and gold in London. In practice, it is commonly observed that agents in such markets reduce their demand leading to behaviors resembling bargaining and to inefficient outcomes. We ask how inefficient the equilibria can be. Our main result is that the welfare of every pure Nash equilibrium of the Walrasian mechanism is at least one quarter of the optimal welfare, when players have gross substitute valuations and do not overbid. Previous analysis of the Walrasian mechanism have resorted to large market assumptions to show convergence to efficiency in the limit. Our result shows that approximate efficiency is guaranteed regardless of the size of the market